From interest rate hikes to climate change, shifts in the physical, political, and economic worlds are having effects on the real estate industry. Some of these developments affect the residential and commercial sides of the business differently, while others are common challenges all practitioners will face. As 2019 approaches, here are a few short-term and long-term hurdles you should know.
1. Interest rates and the economy: The Federal Reserve bumped up interest rates this year and plans to continue the hikes in 2019, hoping to get rates back to historically normal levels. That could make it harder for home buyers, investors, and real estate developers to secure financing—and put a larger financial burden on those who can. Meanwhile, The Tax Cuts and Jobs Act increased deficit spending. Federal borrowing could crowd out private individuals from the debt market, experts speculate.
2. Political uncertainty: The Tax Cuts and Jobs Act changes policy regarding the regulation of community banks. The new law relaxes some requirements of the Dodd-Frank Act, adjusts rules regulating high-volatility commercial real estate, and reduces data requirements under the Home Mortgage Disclosure Act. Potential trade wars also could impact real estate.
3. Retailers and e-commerce: The U.S. Department of Commerce estimates that $127 billion in retail sales were generated online in the first quarter of 2018—a troubling sign for brick-and-mortar stores. Several big-name retailers have announced store closures while others have opened in new locations. The implications of this shifting retail strategy on real estate are still playing out.
1. Infrastructure: A lack of investment in infrastructure is creating economic drag. Real estate depends on well-maintained and reliable infrastructure—utilities, roads, transit routes—and there haven’t been enough serious attempts in addressing America’s structural maintenance issues.
2. Natural disasters and climate change: More states and local communities are setting up policies around energy regulation and sustainability efforts in order to cope with changing environmental conditions. But this creates more legal obstacles for real estate developers and could slow down projects at a time when new construction is already sluggish.
3. Immigration: New restrictions on legal immigration under the Reforming American Immigration for a Strong Economy Act has had the effect of lowering the number of green cards from 1.1 million to 500,000 annually. Stifling legal immigration—along with labor shortages—will have consequences for the economy at large as well as for real estate.