Top 10 Real Estate Issues - by Jonathan Avery

The Counselors of Real Estate (CRE) has recently released their annual survey of The Top Ten Issues Affecting Real Estate. This list starts with a series of potential issues identified by individual members and committees within the counselors. Once identified, these issues are debated and voted upon by the general membership – 1,100 experienced real estate professionals across the country. 

The top two issues identified on this list are U.S. infrastructure and housing. These ranked as the leading concerns of the members. 

Inadequate infrastructure creates a hard ceiling to economic development, and real estate values are tied to sustainable growth. This has become particularly poignant in eastern Mass. as we grapple with traffic congestion and the lack of adequate public transportation. The U.S. must invest in infrastructure to compete globally, but right now it is lagging other nations significantly on infrastructure investment. The report sites that roads, bridges, tunnels, railways, airports, the power grid, water systems and levees are giving way with increasing frequency. While the White House and congressional leadership have discussed funding of up to $2 trillion, it remains unclear when government leaders will take the appropriate action. This is a growing and major concern as it affects real estate values. 

Housing in America was ranked second on the list. With the gap widening between increasingly expensive supply and the decreasing level of ability to pay, the underlying causes can be found both on the demand side and supply side of the housing equation. As we have experienced over the last few years, housing affordability is a threat to the stability of the middle class and will eventually hit other parts of the economy as well. The new limits on deductibility of state and local taxes are affecting both urban and suburban homeowners. To some degree, the liquidity of the housing market has been compromised by the difficulty of the Baby Boomer generation in letting go of their long-time residences. 

Weather and climate-related risks rounded out the top three issues of concern in this survey. As real estate investors are requiring that climate risk be assessed and factored into the return projections and day-to-day decision making with their real estate investments. Weather and climate-related risk have emerged as a new and likely permanent aspect of fiduciary duty and what it means to assess, disclose and manage these risks for real estate investments. It is clear that real estate investors can no longer rely on historic performance to predict future returns, with the frequency and intensity of events increasing, weather and climate-related events present physical and operational risks for real property.

The just released report by the Union of Concerned Scientists predicts that nearly 2.5 million coastal properties worth $1.07 trillion are at risk for flooding by the end of this century. The country’s 48 contiguous states have roughly 13,000 miles of coastline which are potentially exposed to flooding. 

The remaining issues identified by the Counselors in their survey are The Technology Effect, End-of-Cycle Economics, Political Division, Capital Market Risk, Population Migration, Volatility and Investor Confidence, and Public/Private Indebtedness, respectively 

Many of these issues are interrelated and thus influence one another. Investors and developers seek unbiased, objective advice on the critical factors which will impact all property today as well as those issues which may affect their decisions over the next 10 years. The thought leadership presented by the Counselors of Real Estate is an invaluable service to those clients and to the real estate industry in general. The top 10 issues affecting real estate in one example of implementing this valuable forecasting resource. 

Jonathan Avery, MAI, CRE, is president of Avery Associates, Acton, Mass.