Issues Affecting the Real Estate Industry

The real estate sector is quite a huge one. This means that is affected by certain issues that are pertaining to the industry. The issues revolve around the economy, demographics and even politics.

  1. Energy: The U.S. is becoming increasingly energy independent.  Changes in U.S. energy production are impacting jobs, income growth and the quality of life – key determinants of real estate value and successful investment.  The mix of energy types produced–crude oil, natural gas and alternatives such as wind and solar energy–provide investment opportunity and risks. The impact of energy production changes varies by state and community depending on access to resources, regulatory trends and other factors; however, many communities involved in increased energy production are experiencing a jobs boom with related housing and services growth for workers.  Uncertainty in the energy sector created by dueling reports from environmentalists and the oil and chemical companies provide investors with opportunities.  The potential for relatively low natural gas prices (now one-fifth the cost of Europe and Asia) in combination with other factors has improved the outlook for manufacturing and could significantly advance the expansion of rail, shipbuilding and related industries should gas exports increase.
  2. Jobs: The job market is expected to remain strong in 2014. If the U.S. economy grows by the forecasted 2.8%, the number of new jobs likely to be added will continue to number 200,000 to 250,000 per month.  Strong job creation is expected to have a positive impact on the residential and multifamily sectors. The types of jobs being offered should move up the quality scale, raising average wages and boosting purchasing power for consumers as well as the ability of landlords to extract rents.  Demand for office space may also increase, but employers continue to pare per-employee space requirements, carefully considering space needs because of changing technology and noting the younger workforce’s preference for living in cities and working in open format workspaces.   Job reductions, however, in retail and branch banking, largely due to changes in consumer behavior and online technology, will take a toll on housing, may benefit the apartment sector and could negatively impact commercial real estate. Service sector jobs may absorb some of those displaced.  Communities and neighborhoods that once valued big-box stores may be well served by courting schools, physical therapy services and even independent and assisted living facilities for senior citizens drawn to a retail/lifestyle/entertainment environment.

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When it comes to demographics the millennials are taking over. This is the generation that does not mind renting a house. In the United States there seems to be lots of capital thanks to foreign investors in the market. There is also a rise in interest rates which could slow down sales.

  1. Demographic shifts: Millennials will account for 3 in 4 workers by 2025 and their buying power will shape the economy, according to Shlaes. This generation is not as confident in the home as an investment; enjoys living in concentrated, walkable locations; and is “perfectly happy” renting, he said.

At the same time, baby boomers must decide whether to age in place in their suburban homes, downsize or retire in a senior community.

  1. Excess supply of capital: Investment in U.S. real estate is approaching record highs as foreign investors seek to park their money in a relatively safe asset. Multifamily is the “darling” of investors, but single-family investment is also on the rise, Shlaes said.
  2. Rising interest rates: Although interest rates aren’t necessarily going up or perhaps slightly, savvy investors and consumers are preparing for them. An increase in interest rates could slow home sales.

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Since the millennials are the majority in population, urbanization is a trend. People want to live and play in the city. So there are certain locations that have lots of people occupying houses and some that are literally empty. There is also a big gap between the rich and the poor. This means that only a certain number of the privileged few can afford to buy a home.

Urbanization: “An increasing desire to reside in “live-work-play” and “walkable” communities is not limited to young professionals; older generations are also drawn to such locations, which affects housing choice for all age groups.” BuzzBuzzHome recently reported on a new study examining urbanization that found that sprawl has been on the decline since the 1990s.

The Gap Between Rich and Poor: “The shift from homeownership to renting, and a decline in local small business ownership, contributes to fewer jobs and a lack of investment in communities, increasing the potential for the social unrest, we are seeing in cities and towns throughout the world.”

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