AUSTIN – (Realty News Report) – The Counselors of Real Estate identified the most important challenges facing the U.S. real estate industry on the opening day of the National Association of Real Estate Editors 2019 conference in Austin. More than 1,100 real estate professionals from some 50 disciplines voted on the top issues expected to shape the market in the coming year. Below are the Top 10 issues, presented in reverse order.
10) Public and Private Indebtedness
U.S. investment property carries roughly three dollars of debt for every dollar of equity, according to the Counselors of Real Estate. The current abundance of inexpensive capital raises concern: when borrowing costs rise, property values are likely to be pressured. Household indebtedness has also increased, with U.S. household debt rising to $4.052 trillion in March, up 3.1%, amplifying the vulnerability of both individuals and the broader real estate sector.
9) Volatility and Confidence
Market confidence is difficult to measure and often misleading. Consumer confidence gauges such as the University of Michigan Survey and The Conference Board Index have historically peaked near recessions, suggesting they reflect recent trends more than future direction. Both measures recently returned to near-record highs, prompting concerns that complacency could mask a sooner-than-expected downturn.
8) Population Migration
Since the first U.S. census, population movement has shifted the nation’s center of population westward and southward, a trend that continues. Between 2010 and 2018, demographic gains concentrated in many coastal and major urban areas. Capital follows people: in 2018 the ten largest metropolitan statistical areas drew $266 billion — 46.4% of real estate investment — despite representing only about 33% of the U.S. population, the Counselors note.
7) Capital Market Risk
Capital market risk is heightened by elevated indebtedness and uncertain confidence. Persistently low interest rates have driven investors to seek yield by taking on lower-credit, higher-risk assets. Outstanding commercial real estate debt sits near a record high — roughly $3.5 trillion — nearly $1 trillion more than the post-crisis trough in 2011–2012, according to data from the Mortgage Bankers Association and Morgan Stanley.
6) Political Division
Although the Counselors of Real Estate is not a political body, growing political polarization complicates solutions to major real estate-related challenges. Issues such as climate policy, migration, infrastructure investment, and housing have stalled as compromise becomes politically fraught. For example, a proposed $2 trillion infrastructure initiative discussed at the White House was shelved within weeks amid partisan deadlock.
5) End-of-Cycle Economics
Talk of an approaching end to the economic cycle has become common. While economic activity remains strong, many observers worry the long expansion is nearing its limits. Signs of strain appeared during the recent government shutdown, when some federal workers, after missing paychecks, had to rely on food banks — a reminder of vulnerabilities even in a robust economy.
4) Technology
Technology continues to reshape real estate operations and asset performance. Building systems for HVAC, elevators, lighting, and parking are increasingly networked. Real estate firms are adopting IoT devices, big data analytics, digital twins, artificial intelligence, and blockchain to support operations and decision-making. The pace of technological change outstrips industry adoption, producing fragmented solutions, varied vendor landscapes, and uneven implementation across firms.
3) Weather and Climate
Climate change increasingly factors into investment decisions. Acute physical risks such as hurricanes, flooding, wildfires, landslides, and heavy snowfall, together with chronic risks like sea-level rise, drought, heat waves, and water scarcity, are reshaping how owners and developers plan properties. Many landlords now emphasize emergency preparedness, relocate critical systems to higher floors, add backup generators, build seawalls or berms, and evaluate on-site renewables and battery storage. Since 2008, property and casualty insurance premiums have risen by more than 33%, and California’s 2018 insured losses from wildfires exceeded $12 billion.
2) Housing in America
Housing shortages and affordability problems affect multiple demographic groups — low-income households, the homeless, Millennials, Gen Z, and many Baby Boomers. The 2008 mortgage crisis had long-lasting effects: residential construction slowed dramatically and when it recovered, the unit mix shifted toward higher-end, more profitable housing. Income gains have disproportionately favored the top quintile of earners, while real income for most Americans has stagnated over two decades, worsening affordability for the remaining 80%. Housing intersects with other major issues — population migration, political division, infrastructure, and market confidence — creating a complex web of challenges.
1) Infrastructure
Nationwide, aging infrastructure — roads, bridges, tunnels, railways, airports, power grids, and stormwater systems — is failing with increasing frequency and requires significant investment. The American Society of Civil Engineers estimates roughly a $1 trillion funding gap to restore and modernize critical infrastructure. Inadequate infrastructure imposes limits on economic growth and constrains real estate values tied to sustainable development, said Julie Melander, CRE, 2019 chair of The Counselors of Real Estate.
Since President Trump’s election, infrastructure improvements have been frequently discussed, but partisan division has impeded substantive action. The current economic expansion has, until now, enabled access to attractive long-term borrowing rates. If the expansion ends, the opportunity to finance large-scale infrastructure projects at favorable rates may diminish.
June 26, 2019 Realty News Report Copyright 2019
Read the new book by Ralph Bivins, Editor of Realty News Report
Houston 2020: America’s Boom Town – An Extreme Close Up
Available on Amazon