Dr. Lawrence Yun, Chief Economist and Senior Vice President of Research at the National Association of Realtors, kicked off the Wisconsin Real Estate and Economic Outlook Conference as the morning keynote speaker, focusing on the impact of the new political landscape on housing. Yun noted that future tax reform could hurt housing prospects if the mortgage interest deduction is not utilized by as many taxpayers.
“There is still more gas in the tank for further improvement but we have to deal with the uncertainty of some new policies that may impact real estate in a big way.”
Yun said that the fundamentals in housing still look to be very solid at the moment with a job-creating environment. Single-month home sales are higher compared to the year before for every single month in 2017 and the Consumer Confidence Index and Small Business Optimism Index both show positive trends.
Yet home sales are still lagging behind historical standards because of low inventory caused by shortages in lots and labor. New lending practices have also hindered small builders from contributing more to new home sales growth. Younger generations are still wanting to buy housing but new variables are forcing them to delay that life transaction.
“Why is home ownership so low? Principally because of the young adults not realizing home ownership as in the past,” Yun said. “One key reason they are unable to buy a home is student debt.”
Yun said his team will continue to focus on tax reform and, with continued economic growth in the forecast, remains optimistic about the housing market.
“There is a pent-up demand,” Yun said. “The question is can home builders build enough homes to meet that demand that will be released in the market.”
The Future of Financial Regulations: Balancing Risk And Reward
Matt Feldman, President CEO of Federal Home Loan Bank of Chicago and Bill Ashbrook, Senior VP of Real Estate Banking at PNC Bank, led the first panel of the conference. Feldman talked initially about the effect of the Great Recession beyond the immediate economic consequences over a few years.
“It will continue to impact our society. I believe that impact will continue for decades,” Feldman said. “We need to think of this as a societal impact in a way that’s not dissimilar to what happened after the Great Depression. It will fundamentally change the behavior of a generation.”
Continuing effects of the Great Recession include delays in household creation and wealth formation from millennials who came of age during that time. Lashbrook then spoke on regulations, including within commercial real estate development.
“These things do matter,” Ashbrook said. “Your institutions have to function within these rules.”
Both fielded questions from the audience. When asked about solutions for the impacted generations of the Great Recession, Feldman said it was a “tremendous failure of our federal government that they are not thinking of job creation in the context of reskilling our population and making sure the right kinds of jobs are available in the right places.”
Ashbrook closed the panel offering an opinion on the future of Dodd-Frank. He said, “I believe that there’s been a bias against real estate lending relative to bank regulation that is long before Dodd-Frank,” Ashbrook said. “Until we get rid of this bias that real estate lending is bad … that is the thing that has to change. I don’t think anything in Dodd-Frank will necessarily do it.”
Regulatory Reform in the Trump Era
Duane Desiderio, Senior Vice President & Counsel at The Real Estate Roundtable; David Mericle, Senior Economist at Goldman Sachs; and Jenny Scheutz, Fellow at the Brookings Institution, discussed the second panel of the conference focused on regulatory reform.
Mericle started the panel by noting that deregulation had become a buzz word around the administration but interviews with business leaders made him believe that regulations were not a key issue for various industries. He said that while trade policy and immigration reform were strong campaign themes, the government have not really acted on them to date.
“So far these various proposals have not amounted to a whole lot,” Mericle said. “Having said that, I think these are still some important things to keep an eye on, especially since other campaign promises … are unlikely to be fulfilled.”
Lastly, he predicted that tax reform would likely be a plain vanilla tax cut that would provide a reality check to markets that are now reacting strongly to the potential of tax reform.
Desiderio pointed out that reduced immigration has led to a shortage in labor in the southwest markets. “The folks just are not there to build the houses, supply demand as it has been in the past,” Desiderio said.
The tourism industry also had seen a 12-14 percent reduction in tourist visas which will impact rents and values in certain asset classes of real estate, especially in markets like Orlando and New York.
He also thought the Trump administration missed an opportunity to do an infrastructure initiative immediately and guesses the subject will be brought up after the 2018 midterm elections depending on what happens with tax reform.
Scheutz spoke about how policies and regulations can affect residential real estate. “It’s worth considering whether some of the policies concerning, say parental leave or subsidies for child care, might have an impact at the point in life at which people get married, have kids and thus their demand for home owners.”
She noted that new residential real estate is often limited more by regulations at the local level and closed the session by asking if this administration will get involved with municipal regulations of land use policies in places like California.
Affordable Housing Policies: Myths and Realities
Kerry Vandell, Director for Center for Real Estate at the University of California-Irvinte Paul Merage School of Business, closed the conference with the afternoon keynote on affordable housing. Vandell started by outlining a few indices and metrics commonly used today to measure housing affordability. Vandell questioned whether there are better ways to measure the market, especially on the rental side.
“We’re not even sure what the right thing is in some way,” Vandell said. “I think there’s a fair amount of good economic work that could be done to try to more rigorously identify affordability.” Most of the policies in place to create more affordable housing, Vandell noted, are focused on reducing housing prices and rent. However, increasing income is another way to make true costs decrease.
But with the situations of many communities varying drastically, Vandell said many places need to be creative in their solutions. He mentioned a program in Norway that gives first-time buyers their down payment and the ability for some to shortcut the regulatory process in California’s high-demand markets.
Vandell opined that filtering provides the best opportunity to create affordable housing. “Households as they age are making more in real terms and are able to afford t hose other units and move up,” he said. “It means that everyone can continue to improve their housing affordability and consumption over time.”
But communities need to work to create the conditions in which that process can happen. He noted that growing income disparity and the hollowing of the middle class has been a big hindrance in recent years. Specifically in Wisconsin, since 2000, there have been fewer jobs created compared to the national average coupled with smaller-than-average income growth.
“Policies that have the most impact on affordability should focus on both housing costs and on incomes to differing amounts depending on the circumstances,” Vandell said.
We would like to thank the following sponsors for their support of the 2017 Wisconsin Real Estate & Economic Outlook Conference: Federal Home Loan Bank of Chicago (FHLBC), City of Green Bay, First Weber, Old National Bank, Wangard Partners, Wisconsin Department of Administration, Wisconsin Housing & Economic Development Authority (WHEDA), Wisconsin REALTORS Association, SVA Professional Services, US Bank, and the Wisconsin Bankers Association.