Every year, the Urban Land Institute examines the intersection of American cities and real estate. Its Emerging Trends in Real Estate report offers a forecast of what municipalities have going for them, and where possible threats lurk in the near future.
Who’s driving the bus?
One important element of economic forecasting is understanding where both growth and potential instability will come from. At an economic forecast event held in Chicago dedicated to the report, Mark Eppli, director of the James A. Graaskamp Center at the University of Wisconsin-Madison, predicted the GDP will slow, but that much of the decrease in activity will come from cautious business investors, not worried consumers.
“GDP will migrate from 2 percent to 1 percent across 2020,” he said. “Business investment will remain narrowly negative… [but] I don’t see a trigger that will have consumers pull back.” Eppli noted that business owners had a golden opportunity to demonstrate optimism with the most recent tax reform bill. “They have the money. What did they do with the money? …They end up buying back their own shares,” he said. “Their actions indicate that they aren’t that confident” in the economy.
Instead of being driven by the business world, Eppli noted that it is running on high consumer sentiment. While the business community is focused on political instability, he said, “That’s just noise to most consumers.” But how the public is feeling is not a great measure of future growth, because it’s more of a lagging indicator than a leading one. “Consumer sentiment changes like that,” Eppli added.
The local POV
In terms of overall real estate prospects, Chicago ranked 48 out of 80. While it’s up from 49 last year, the area fell to No. 71 when it comes to homebuilding prospects. The report did call out Chicago’s strong labor market and its remarkable appeal to the industrial real estate industry: “Based upon ‘voting with the wallet,’ however, investors believe that [Chicago is] … not underwhelming, but underrated.”
The report also called out the potential for what it called “anchor networks of communities that can be named ‘hipsturbias,’” defined as walkable areas with “an abundance of retail, restaurants, and recreation.” These don’t just happen in the city; researchers specifically called out the area around Northwestern University in Evanston as an example of the phenomenon: “Rooftop bars, Lake Michigan beaches, downtown shopping, and access to and from the Chicago Loop via the Chicago Transit Authority’s purple line help round out the elements of coolness in one of the Midwest’s oldest suburbs.”
Looming problems in the residential sector
Despite an overall positive economic outlook, affordability problems threaten the market. The ULI report referred to residential real estate as “the great unraveling” and noted that “housing is a mess and getting worse.”
Researchers noted that the high cost of housing is causing municipalities and states to look for solutions, turning to partnerships with large employers or looking at rent control. “Politics? Sure. But the politics only arise as a result of the market conditions,” the report quipped.
Whatever the case, the ULI’s study maintained a sunny disposition when it comes to the ability of the industry to evolve to meet market needs. “If we are at a critical moment for housing, perhaps that is not entirely such a bad thing,” researchers said. “The real estate industry can be counted on to adapt.”