Know the issues; adjust your business.
The Counselors of Real Estate® (CRE®) professional association announced its annual Top Ten Issues Affecting Real EstateTM List for 2018-2019. Today’s issues will impact your decisions over the next ten years. Here are the top 10:
- Interest Rates & The Economy
- Politics & Political Uncertainty
- Housing Affordability
- Generational Change/Demographics
- E-commerce & Logistics
- Disruptive Technology
- Natural Disasters & Climate Change
- Energy & Water
- Interest Rates and The Economy. As interest rates rise, the commercial and residential real estate markets are already experiencing changes—decreasing demand for commercial property, and higher home mortgage rates. Rate increases also limit value appreciation for commercial real estate and make housing less affordable. Lack of wage growth for all but the wealthiest population segment is dampening housing demand and limiting consumer spending that the economy needs for growth. The Counselors cited a 2017 Brookings Institution study which showed real wages for most of the middle-class have only increased 3.5 percent since 1979, compared to a 24 percent rise for the top income segment.
- Infrastructure. The lack of serious effort by the U.S. to address its condition and much-needed revitalization leads the list of broader and emerging issues affecting real estate. Roads, bridges, airports, water and sewer lines, electricity, even public transit. All are necessary to sustain and expand cities and communities and are rapidly deteriorating. U.S. infrastructure was given a D+ rating in the American Society of Civil Engineers 2017 Infrastructure Report Card. As much as $4.5 trillion is estimated by that organization to improve critical infrastructure by 2025.
- Politics and Political Uncertainty. was second on The Counselors’ Current Issues list. Tax reform and policies enacted to change the balance of trade with other countries impacts jobs, incomes, and property of all types, commercial and residential. Congressional action to relax certain bank lending and asset management regulations was also among developing trends which may improve access to capital.
- Housing Affordability across nearly every income bracket with the exception of the most-wealthy households. Affordability is fueled by not only low wages and rising mortgage rates but also underproduction of housing for almost two decades.
- Generational Change and Demographics. For the first time in more than half a century, there are four distinct groups exerting influence on both commercial and residential real estate, such as office design, student and elder housing, amenities and locational preference. Aging Baby Boomers, a similar number of Millennials, and the smaller groups on either side of Millennials (Generation X, now mostly middle-aged and Generation Y, including students and those in their early 20s).
- E-commerce and Logistics that support warehousing and delivery of goods all contribute to retail sector volatility.
Additional Longer-Term Issue
- Following closely behind Infrastructure on the 2018-2019 list of Longer-Term Issues is Disruptive Technology. Examples include advanced robotic manufacturing and warehousing; driverless cars and trucks; the wide availability and utilization of personal and transactional data (which enhances all kinds of business decisions), smart building technology that enables efficiency; global connectivity; automated business processes; and information protection through cybersecurity. Nearly every aspect of real estate is undergoing dramatic change as these types of technology are adopted.
- Natural Disasters and Climate Change, which result in property and environmental damage from events such as severe storms, wildfires, floods, earthquakes, volcanic activity, and rising sea levels.
- Immigrationwhich, if reduced by law, may have a negative impact on new housing starts and home purchases as well as possibly worsen the current skilled labor shortage in the United States.
- Energy and Water, natural resources essential to property and quality of life, yet threatened by not only environmental damage (human-made and climatological) but entangling state and local regulations which complicate development and lack the national standardization regulations would provide.
On the Watch List are four additional issues—Construction Costs, Urbanization/Suburbanization,
Tax Cuts and Societal Leadership.
- Rising construction costs make some development unfeasible and increase prices on commercial and residential property alike.
- Cities continue to attract population and provide opportunities for Millennials, seniors, and other demographic segments as well as property investors, corporations and small businesses. Suburbs are adapting with city-like development and amenities.
- Tax cuts positively impact commercial properties, although the effect of this legislation is still developing. This legislation has the potential for corporations large and small to create jobs. Individual tax cuts may provide a slight increase in disposable income and make home repair or remodeling more attractive; on the other side of the equation is limits on mortgage interest deductibility for homeowners.
- A new surge of social activism among younger Americans, celebrities and a significant portion of the American public surrounding the #MeToowomen’s movement, gun control, and diversity has potential—if sustained—to fuel business and social reform on many levels. The real estate industry has an opportunity to take a leadership position to hire, train and promote women and minorities; build responsibly and sustainably; create affordable housing, and enhance protections for properties, tenants and residents.