Real Estate Industry Executives Warned to View Recovery with Caution; Consider Longer View to See True Economic Growth Picture


CHICAGO, IL – May 28, 2012 – (RealEstateRama) — Two widely published social commentators stood before an audience of top real estate executives in Chicago last week with messages they say are not being disclosed in most circles when the current economy is discussed. And they did not necessarily agree on all points.

In separate presentations, Joel Kotkin, author and presidential fellow, urban futures, at Chapman University and Erik Hurst, Rath professor of economics, Jeuck faculty fellow at the University of Chicago Booth School of Business, addressed members of The Counselors of Real Estate®, an international association of top commercial real estate executives at the organization’s midyear meeting in Chicago. Both educators challenged attendees to look beyond typically quoted, surface-level statistics for answers to tough questions about the economy.

Kotkin, also known for his writings in and The Wall Street Journal, said despite continued interest in and sales of multi-family housing, there is currently an “over-investment” in multi-family housing, calling it “the flavor of the month,” and no longer a necessarily wise investment. He predicted continued suburban growth over the next few decades, citing it was “a myth” that empty-nesters would move out of suburbs and into city condos in the numbers previously predicted by the real estate industry. He noted that young people — as they approach marriage age — still prefer single family housing and are still choosing the affordability and lower density of suburbs as opposed to in-city dwellings.

Among factors contributing to suburban growth, he said, are fewer people moving out of suburbs, and residents staying in their homes longer than before — as such, suburbs are becoming multi-generational, and additional development may be needed to accommodate demand by first-time homebuyers. He also noted that immigration to the U.S. has slowed, but ethnic preferences are shifting to suburban over urban locations.

At the same time, Kotkin spoke out against spending on high-speed rail systems with the exception of dense corridors in the northeast, citing the U.S. “should improve the infrastructure we already have.” And he said rail systems are one of the largest creators of urban sprawl.

He predicted job growth in – surprisingly – manufacturing, which he said will increase in the U.S. as labor costs continue to rise in China, providing pockets of employment opportunity in locations such as the Great Plains, Gulf Coast and southeastern states in the U.S. And he said agriculture and energy industries are already beginning to be additional growth drivers for the U.S. economy.

Hurst, however, told attendees that the U.S. recovery is “anemic,” and his picture of the near term was drastically different from that of Kotkin. Hurst predicted there will be no big turnaround in housing prices soon, no “big bounce” in consumption, no increase in manufacturing and a continued rise in unemployment,

He said the recent recession was drastically different from other U.S. recessions of the 20th and 21st centuries with the exception of the Great Depression. He pointed to the past decade of rapid economic growth, the rise in housing prices, rampant development and high employment as a deviation from the true U.S. norm. He said it is not realistic to assume household spending will return to anything near pre-recession levels any time soon because “people overspent – now they’re not spending.”

“Historically, housing prices increased from zero to two percent per year,” Hurst said, asking why anyone would assume prices could rise above that with extremely low current demand. One of the few bright spots he cited is that households are increasing their savings rate – good for individuals, but bad for consumption, he said.

He cited U.S. Census data when he said America should “expect persistent unemployment, particularly among men with only a high school education or less.” He underscored the importance of that statistic, noting that approximately one-half of all employment-aged U.S. men are considered “low skilled” because of lack of education and training. “Low skilled men got a reprieve in the housing boom in construction, and before that, in manufacturing. That’s gone,” he said. From here, he said, it only gets worse for that huge demographic group.

In closing, he said, “If you compare 1960s productivity against present levels, women and minorities in the work force today do not account for the lack of jobs” for unskilled men. And, he concluded, “The economy is going to be much less responsive than people think – regardless of what happens in November — Democrats or Republicans, it won’t much matter.”

The Counselors of Real Estate®, established in 1953, is an international group of high profile professionals including members of prominent real estate, financial, legal and accounting firms as well as leaders of government and academia who provide expert, objective advice on complex real property situations and land-related matters. Membership is selective, extended by invitation only. The organization’s CRE® (Counselor of Real Estate) credential is granted to all members in recognition of superior problem solving ability in various areas of real estate counseling. Only 1,100 people in the world hold the CRE credential. For more information, contact The Counselors of Real Estate, 430 N. Michigan Avenue, Chicago, IL 60611; 312/329.8427;

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