The U.S. Census reports that 46% of Americans (300 million plus of us) receive some sort of federal benefit, according to Paul Samuelson in his Washington Post column this week. We’re not just talking Social Security, Medicare, and food stamps, but also tax breaks like mortgage interest deductions, not to mention significant corporate tax breaks (hello GE and Goldman Sachs).
In the wake of finalizing the 2011 federal budget, the country begins to come to grips with reducing government spending and realizing that means ultimately losing some very real personal economic benefits. Politicians start talking about how we need to live within our means. But in the early jockeying, we see Republicans ready to hack only at social programs and reduce taxes further—a zero sum game; and Democrats willing to make surgical cuts and raise taxes on the rich, not making much of a dent either. No politician wants to help the country face its ugly reality—to pay off our debts (government and personal), we will need to downscale our lifestyles and become much more efficient (code for conserve). But then all politicians want to get re-elected so you get more lame rhetoric about how cutting taxes increases jobs— well not unless you take the credit card out, the disastrous way we’ve been doing it for the last 30 years.
For the real estate industry, the undercurrent of the brewing debate and eventual solutions is not good news. My bet is that we will see a combination of less government spending and higher taxes over time. That’s the only way you overcome the huge deficits and start reducing increasingly onerous government debt service payments. It’s essentially the direction taken by the President’s deficit reduction commission. As a result, the average person will have less disposable income—you won’t be getting as many benefits from the government and will need to pay more for what you do get.
As a result, people will not be able to afford as much space per capita of any kind and they will look to reduce expenses, including buying fewer things from stores to put in their homes. We won’t want to be as car dependent—car costs and gasoline will look like an increasing drain. More people will work from home or as close to home as possible. Retailers and warehousing will continue to economize. We’ll be all much more focused on essentials and eliminate excess, because we cannot afford as much of it. It’s essentially what happens when you go bankrupt—you’re forced to scale down, do with less. That’s what America and Americans will need to do.
The relative winners in this new, albeit unwelcome environment will be property owners in centralized locations, supported by good infrastructure. Apartments and smaller houses closer to work and shopping/recreation amenities will fare better. Retro suburban lifestyles built around big houses and big yards where you must drive anywhere to do anything won’t be as easily sustained. Our suburban nodes will continue to urbanize and look more vertical, and our primary gateway cities will hold their own, because that’s where the most prosperous will continue to cluster.
We’re broke—let’s face it.
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Jonathan D. Miller
A marketing communication strategist who turned to real estate analysis, Jonathan D. Miller is a foremost interpreter of 21st citistate futures – cities and suburbs alike – seen through the lens of lifestyles and market realities. For more than 20 years (1992-2013), Miller authored Emerging Trends in Real Estate, the leading commercial real estate industry outlook report, published annually by PricewaterhouseCoopers and the Urban Land Institute (ULI). He has lectures frequently on trends in real estate, including the future of America's major 24-hour urban centers and sprawling suburbs. He also has been author of ULI’s annual forecasts on infrastructure and its What’s Next? series of forecasts. On a weekly basis, he writes the Trendczar blog for GlobeStreet.com, the real estate news website. Outside his published forecasting work, Miller is a prominent communications/institutional investor-marketing strategist and partner in Miller Ryan LLC, helping corporate clients develop and execute branding and communications programs. He led the re-branding of GMAC Commercial Mortgage to Capmark Financial Group Inc. and he was part of the management team that helped build Equitable Real Estate Investment Management, Inc. (subsequently Lend Lease Real Estate Investments, Inc.) into the leading real estate advisor to pension funds and other real institutional investors. He joined the Equitable Life Assurance Society of the U.S. in 1981, moving to Equitable Real Estate in 1984 as head of Corporate/Marketing Communications. In the 1980's he managed relations for several of the country's most prominent real estate developments including New York's Trump Tower and the Equitable Center. Earlier in his career, Miller was a reporter for Gannett Newspapers. He is a member of the Citistates Group and a board member of NYC Outward Bound Schools and the Center for Employment Opportunities.
