Counselors of Real Estate List Top 10 Issues Facing Market, And No. 6 Will Stun You

We’re reporting from the National Association of Real Estate Editors Houston Conference today and it has been an incredible morning just stewing with new information. The opening remarks were especially mind-boggling, as Counselors of Real Estate chair Hugh F. Kelly listed the top 10 issues facing real estate now and into the future.

“The list reflects growing economic and political turmoil, changing demographics, and the lifestyle choices of an emerging generation, rising energy independence in the United States, and a strengthening job market fueled in part by massive changes in the delivery of health care,” Kelly said.

For the full list, jump.

10) Agriculture: Of course, with a growing global population, demand for food will increase, and the good news is that agriculture debt is near all-time lows, pushing prices for farmland to all-time highs. There are big opportunities in specialized agriculture (organic produce, grass-fed meat, and local everything!) but farming is resource intensive, so as water and land become more precious, prices may increase.

9) Manufacturing: Technology is making manufacturing more efficient than ever, with automation replacing manual labor at an unchecked pace. That takes more jobs off of the market, further eroding the working population of the U.S. But still, they have to work somewhere, and industrial usage is reshaping cities and suburbs alike.

8) Housing: Homeownership still lags despite a recovering housing market, and while economic indicators show rising national home prices (Case Shiller says 13 percent year-over year!) inventory remains problematic. We are now experiencing the lowest rate of U.S. homeownership since 1995, which reflects a tight credit market and a still limping job market. Still, upticks in both could mean more renters becoming buyers, which should happen right as our multifamily inventory catches up. (Groan!) So why is Dallas’ housing market doing so great? Our job market, of course, because according to Kelly, housing follows the jobs.

7) Capital Markets: Making the top 10 for the second year in a row, the availability of capital to commercial real estate developments now and into 2017 will have an indelible impact on the overall health of the industry. An uncertain Fed and no alternatives than better yields, Kelly asks if we are headed for another bubble, or perhaps a complete “wipeout” altogether?

6) Water: According to Kelly, demand for drinkable water will exceed supply by 40 percent in 2030. That’s just 16 years away, folks. In the meantime, 780 million people globally don’t have access to clean water and 3 million die each year from issues related to sanitation. And in just 10 years, 1.8 billion (Yes, BILLION!) people will live in areas that are considered water-scarce.  Here in the U.S., the rate of groundwater depletion is increasing, with drought becoming the new normal. This will mean that developers will have to drastically change the way they build housing right now, as the lush green lawn is officially a relic.

5) Globalization: Kelly posited some interesting theories and facts on how globalization will transform real estate, especially as the global supply chain is upended and manufacturing in the United States increases in prominence. Additionally, what if the U.S. didn’t need Middle Eastern oil any more? How would that change global markets? And what about political and social unrest in Ukraine and resource-rich Africa?

4) Health Care: What was once a big-box store or strip mall could be the next hospital, as we’re going to need a lot more medical facilities to serve those newly insured under the Affordable Care Act. And as medical corporations look to increase efficiencies, mergers and acquisitions could mean more real estate on the market, too.

3) Millennials: I’m a Millennial, and I was surprised to find out that our generation represents 27 percent of the U.S. adult population. That’s a big chunk! We’re also the generation with the most potential to change the way society works in many, far-reaching ways. Today we want an urban lifestyle with mass transit and walkable neighborhoods. Tomorrow we could very well move to the suburbs. But our preference for urban areas could cause some strain on suburbs, as housing stock loses its luster and schools fight to stay open in some areas.

2) Jobs: As Kelly previously stated, housing follows the jobs, but likewise, jobs follow the economy. As retail and financial sectors shed jobs, demand for some commercial real estate will shrink. Online shopping and automation will affect the service sector. And in turn, that could impact real estate.

1) Energy: Holy Fracking, Batman! Natural gas has fueled 81 percent of new electricity production in the past decade, and thanks to domestic gas exploration, the U.S. pays one-fifth of the price for natural gas that Europe and Asia do. Renewable energy is growing, too, but lower energy costs could help build out rail and shipbuilding enterprises. Additionally, the U.S. produces more crude oil than it imports! Incredible!

What’s your takeaway from this list?

 

1) Energy: Thanks to a mix of crude oil and natural gas exploration, as well as increased investment in wind and solar power,