And the 5 issues to look out for in the future
The Counselors of Real Estate, an advisory organization that monitors real estate, released its latest report detailing the top 10 issues affecting the real estate industry. This year, the organization divided its annual list to focus on five issues currently impacting the industry and five issues to watch for potential long-term impact over the next three to seven years.
While speaking at the National Association of Real Estate Editors spring conference today, CRE Chair Joseph Nahas discussed the organization’s list and the issues it is raising red flags on.
Leading the list of current issues to watch is interest rates and the economy. While interest rates continue to climb, both the commercial and residential real estate markets are feeling changes.
Nahas explained that the issues the real estate industry will see in the future are beginning to happen today. Leading the list of long-term issues impacting real estate is infrastructure – and what the organization says is a lack of effort by the U.S. to address deterioration.
These are the five issues impacting real estate right now:
1. Rising rates and the economy
As we saw today, the Fed raised rates for the second time this year. CRE’s report said that increasing rates exacerbate the affordability crisis and has stakeholders concerned about a potential recession in 2019-2020, which would impact jobs.
“Rising rates can actually be good – and bad – for the economy,” Nahas told the audience. “They’re bad when they increase costs. They’re good when they monitor business activity and keep inflation in check. The thinking in today’s environment by the Fed is the latter, he said “It may be painful in the short run. We may have a slower number of new home purchases or resales, or higher mortgage rates but inflation won’t get out of control.”
2. Politics and political uncertainty
Nahas explained to attendees that the mid-term elections could change the balance of power and with it, policy. “The 2018 elections are going to be telling because they’re going to determine whether or not the policies of the current administration are going to be maintained,” he said.
3. Housing affordability
The group pointed to wage stagnation, gentrification and a low supply of affordable homes and apartments, plus two decades of housing underproduction that has dramatically impacted the residential housing market. “The local control of housing decisions is problematic,” Nahas told the audience. “Decision makers … are beholden to voters and not to the economics of the housing market and as a result, they don’t respond to what is necessary from the perspective of housing that would be affordable and demanded by families, etc.”
Nahas told the audience that the solution is quite simple. “It’s a supply and demand problem,” he said. “If we can increase the supply of housing, we can lower the pricing.” The problem, he added, is convincing local officials to expand density.
4. Generational change and demographics
The organization advised that for the first time in more than 50 years, there are four groups influencing both commercial and residential real estate: Millennials, Baby Boomers, Gen X and Gen Y.
On the rising tide of Millennial homeownership, Nahas said “We have more people today under 40 influencing real estate. That affect has not been fully felt yet. It’s going to take some time. It’s going to happen faster, because everything in this era happens faster.”
5. E-commerce and logistics
Technology is continuing to disrupt, and how we are buying things change, Nahas observed. The group said that there is concern of retail sector volatility, including the rise of e-commerce and logistics that support warehousing and delivery of goods.
And here are the 5 issues to look out for in the future:
The group called out the United States’ recent D+ infrastructure rating from the American Society of Civil Engineers, stating that there is a “lack of serious effort” by the U.S. to address its failing infrastructure. New residential housing developments require new infrastructure, such as water, power and sewer services. The group also stressed that an absence of developed public transit hampers development, creates congestion and ultimately increases costs.
2. Disruptive technology
Nahas said this could be considered a current issue but “we’ve debated and determined that tech is moving so quickly that it’s an evolution,” he said. The organization’s report notes that the impact on residential areas include an increased demand for connectivity, smart homes, and can cause older structures to be less desirable. Nahas told attendees the tech wild card is blockchain, which he said has potential to disrupt real estate in a significant way, in different areas from transactions to titles.
3. Natural disasters and climate change
Despite all the data and press coverage, natural disasters are unpredictable and this plays havoc on homeowners and developer and increases risk to homes, both single-family and multifamily, the organization said.
Immigration affects the skilled and unskilled labor pool, Nahas said. Additionally, immigration impacts both residential and commercial real estate and affects both urban and suburban areas, Nahas pointed out. Residentially, changes in immigration policy mean fewer new households, reduced rental/owner demand, reduced broker transactions, the organization said in its report.
“Policy as we know, is contentious,” Nahas said, adding that it’s an issue to be thought about today but will have larger implications in the next 3 to 5 years.
5. Energy and water
“Owners and developers and investors must consider what the state of energy and water is when building,” Nahas said. Residential real estate is impacted as the cost to extend utilities at the edge of urban areas increases, he said.
“On the heels of that, we have regulatory and environmental actions, which are unpredictable that impact, and therefore, projects that are being considered must be looked at relative to this implication.
The group also released a watch list of areas to keep an eye on, too. These include construction costs, tax cuts, urbanization/suburbanization and societal leadership and activism.