December 13th, 2018 3:14 PM by Jackie A. Graves
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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,
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.
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