Investors, developers, appraisers, and commercial real estate brokers in the Washington area and the United States generally think they're listening to a broken record - only more so - when they hear their British counterparts talking about real estate investment in Great Britain.
"When have three vexing problems," says George Grover, a senior partner in Debenham, Tewson and Chinooks, one of London's leading and most prestigious real estate investment advisory firms. (Partners aren't allowed to own real estate other than their homes and offices because of a potential conflict of interest.)
"First, our labor costs are out of sight. I know you in the United States think your construction labor is, or at least has been, unproductive and expensive. Ours is much worse.
"Second, our construction materials are very expensive.Remember, we have to import most of them. To compound that difficulty, we've suffered significant loss of purchasing power of the pound in foreign markets because of events over the last six months or so.
"Third, our interest rates have gone through the calling compared to yours. We're talking about money costs in the neighborhood of 15 to 20 per cent. We can't get a return on our real estate investment covering that and yielding a reasonable entreprenurial profit.
"The only bright spot is land cost. It hasn't increased. In some cases, it has gone down compared to three to four years ago."
The net result is that building of commercial property - office buildings, retail stores, shopping centers, warehouses, unsubsidized multifamily dwellings - is at a standstill in London and throughout England.
There's some residential building taking place (almost entirely out of metropolitan London) but even that's slowing significantally.
Over the last three years, building costs have gone up about 60 per cent. Values haven't increased comparably. In some cases, they've gone down.
"For example," Grover said, "in the City of London, a mile-square area centered on the Bank of England in Threadneedle Street, rent for a modern airconditioned office averaged about 20 pounds per square foot in 1973 (approximately $22 today.)
"You will understand why the only commercial development going on is either finishing off what was begun before the recession set in or rehabilitating some existing buildings, when the numbers can be made to work out. There are virtually no apartments - flats, we call them - being built in Great Britain."
The latest forecast of the National Housebuilders Federation (roughly the equivalent of our National Association of Home Builders) is that only 120,000 private homes may be commenced in 1977. Some builders predict fewer than 100,000. This compares with 230,000 four years ago.
The trouble again is the discrepancy between increases in selling prices and increases in construction costs. According to the Nationwide Building Society (the equivalent of one of our larger savings and loan institutions), selling prices have increased 23.5 per cent in two years. Construction costs have gone up 47 per cent.
Of interest in the Washington-Baltimore region is the fact that one British builder, William Regan, is negotiating with the Rouse Co. and Howard Research and Development Corp. to build townhouses (the British call them terraced houses) in Columbia, Md. Regan, head of the Braintree, England-based Globe Construction Co. says the units will priced between $33,000 and $34,000. The townhouses will include all the luxuries of a American-built units selling for $10,000 more, he said.