Potholed Thinking: What's More or Less

More and Less

The monthly jobs report tells a familiar story—the unemployment rate heads down, lots of new low wage jobs are created, the overall labor force has not grown appreciably as more baby boomers retire, and the small minority of people at the high end of the education scale (with graduate degrees) have the greatest opportunity to secure most of the wage gains, while everyone else treads water or loses ground… Employees of Wal-Mart, the nation's largest employer, will make more thanks to overdue company raises, but what's more when you are making a few bucks an hour above the minimum wage—on their take home pay these workers will not be able to afford to buy homes or new cars, let alone pay their kids' way to college… And what does it tell you when the Fed remains reluctant to raise interest rates—rumors suggest maybe by summer… but which summer? And all this lukewarm news is happening as we are six years into recovery, nearing the unofficial full employment threshold of 5% unemployment. Once again, welcome to “The Era of Less.”

Too Much

It was eye opening, but maybe not surprising to read last month's New York Times series on anonymous offshore investors, who shall we say have earned their income in various questionable ways, and use shell corporations to park money anonymously in luxury high-rise apartments without spending too much, if any, time living in them. Now local pols are kvetching about developer tax breaks passed on to these ultra-wealthy condo buyers, allowing them to pay far less in property taxes on their mega million dollar units than middle class homeowners in Queens or Staten Island. The construction trades temporarily are benefiting from all the new building activity and brokers—conveniently oblivious to the identities of their buyers—are in heaven over all the sales. Developers, of course, are raking it in—noting that they would not be able to build these towers without the tax breaks. But at what point does the market give out for lack of “ultra-rich” foreign purchasers? And what happens to the value of these units when the full-on tax bills come due after the tax breaks expire? And then who really will want to live in these mostly unoccupied buildings, which are located blocks from any real neighborhood amenities like food stores and retail services? Or will these flats continue to trade like gold bars between investors who are not motivated to live in them? Is it speculation, money laundering, just getting money to a perceived safe place, or some combination of all three? Whatever the motivation, the market cannot sustain this tax-incented activity.

Not Enough

After the bone chilling winter, March brings potholes and again puts in high profile the serious infrastructure problems facing the country. Driving around metro New York last weekend turned into a swerve fest for avoiding potentially tire wrecking crevices and pits on interstate and bridge pavements with intermittent stop-and-start slowdowns to deal with jam ups at rough road surfaces. Many suburbs have obviously held back on repaving local roads for years too, judging from the increasingly bumpy rides—patching surfaces each spring just delays the inevitable expenditures for repaving… The costs to drivers in lost time, car repairs, and even accidents can be staggering. The Wall Street Journal recently reported that truck delays annually cost UPS $105 million alone—the company must add extra trucks into its fleet in order to meet on time guarantees for deliveries, because of congestion. That's why even the Republican leaning U.S. Chamber of Commerce has been lobbying Congress on behalf of its members to increase infrastructure spending, but so far to no avail since that will mean raising taxes—an ideological nonstarter for a majority of representatives. But one way or another—the taxpayer pays, either in fixing broken axels, lost time in traffic, or paying the costs in taxes, tolls and fares for better roads and mass transit. It's pretty clear what makes more sense (cents). And at least infrastructure spending not only creates thousands of high paying jobs, but also funds projects that will ultimately boost the economy and increase productivity like getting to work sooner and not wasting gas in traffic tie ups.

You can't say that about tax breaks for those condos in the sky.

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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.