Ken Rosen on Brexit: Much Ado About Nothing

Bay Area real estate, San Francisco real estate blog, Ken Rosen, Fisher Center for Real Estate and Urban Economics, Bay Area news
Bill Falik and Ken Rosen at the Fisher Center for Real Estate and Urban Economics 2014 Spring Conference

By Jacob Bourne

The United Kingdom is to begin an extended process to leave the European Union membership of nations following a June 23 decision by nearly 52-percent of about 30 million voters who thought that Britain should pave its own economic road going forward. A member of the EU and its predecessor organizations for the past 43 years, the UK is one of 28 countries that have participated in the Union’s solidarity, making the referendum loaded with both surprise and misgivings from many across the globe. The most salient impact has been the sudden fall in global equities markets, a dramatic devaluation of the British pound, and a sharp loss in value of the British banking sector—a classic symptom and cause of financial uncertainty. However, for Kenneth Rosen, PhD, chair of the Fisher Center for Real Estate and Urban Economics at Berkeley’s Haas School of Business, the recent upheaval is more “much ado about nothing” than a sign of long term crisis.

“It’s an overreaction—over the next week markets will stabilize with very little effect,” suggested Rosen. “If it continues to stay down, and if the capital market seizes up, it will create a negative effect; we have to wait. The key is what will happen to capital markets over the next week or so. It’s a lower impact on our country than a problem with China would be.”

In the U.S., a notable progression has been that interest rates have dropped dramatically, which will be a boon to real estate markets if the trend continues as encouraged by Brexit reactions, but Rosen doesn’t expect the rates to stay low for very long. A more extended reality could be other European countries questioning their EU membership status, as heads turn toward France, which hosts a small but significant population of those who also want to exit the EU. For Rosen this volatility in European markets will likely help U.S. real estate by making this country more attractive to investors.

“The main reason is immigration. The UK had half a million people come into the country last year, and they don’t want that. A lot of countries are unhappy and will threaten [similar actions]. EU will have to respond. A looser Union means that people wouldn’t be able to move as freely from country to country, and there would be less subsidies from rich countries to poor countries,” Rosen added.

A major driver cited for those in favor of Brexit are the rising rates of immigration into Europe as well as having to comply with rules and paying fees associated with membership. In 2014, overall immigration to the 28 EU nations totaled 3.8 million people, less than 1 percent of the EU’s combined population. Among numerous reasons to stay, belonging to the EU allows for the freedom of movement with the dispensation of visa requirements for those visiting or wanting to reside in another country as well as fewer trade restrictions.

Regarding how the two major Bay Area real estate markets could be affected by Brexit, Rosen admitted that it’s too soon to tell as the volatility of an unexpected and unprecedented (no other European nation has rejected its EU membership) political event continues.

With Brexit possibly serving as a cautionary tale for the chaotic effects of abruptly burning versus slowly building political bridges, the waiting game appears be one of confidence and optimism on this side of the Atlantic.

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