Real Estate Market Tied to Deficits, Debt : Seminar Speakers Focus on Harsh Realities Ahead for Industry
Set aside your rose-colored glasses.
The future of the nationwide real estate market should be viewed through 3-D lenses focused on the harsh realities of deficits, debt and deregulation.
This was the observation of Kathleen M. Connell, managing director of the UCLA Center for Finance and Real Estate, speaking at the opening session of the third annual Real Estate and Economic Forecast Seminar at the Westin Bonaventure Hotel.
“In California, three issues will become theme songs of the real estate industry as we move into 1989: no-growth, infrastructure and housing affordability,” Connell also predicted.
Tuesday’s conference was scheduled for a repeat performance on Friday at the Marriott Anaheim, both sessions sponsored by the Building Industry Assn. of Southern California, in conjunction with UCLA’s Center for Finance and Real Estate, the USC Law Center and Property Forum and the Los Angeles Times, as corporate sponsor.
Government Role
“Housing affordability will be the civil rights issue of the 1990s in California, coupled with infrastructure limitations,” said Connell, chair for both seminars. “And no strategy will be effective, if it is not based on acceptance of the role which government plays in the real estate markets.
“Linkages between public and private sectors will be the passport to your survival and success,” she told the audience of builders, developers, brokers, investors and real estate attorneys.
Foreign investment will continue to increase, with Japanese investors continuing to dominate the “megadeals,” with predicted new roles in 1989 for these Asian investors as sole developers and constructors.
Pension funds were tapped by panelists as a growing source of real estate capital and the forecast indicated that pension funds will account for more than $50 billion in financing opportunities in 1989.
Kent Colton, vice president and chief executive officer for the National Assn. of Home Builders, posed the question: What will the federal housing policy be in the Bush Administration and the 101st Congress?
“The Federal housing policy in the last eight years has been a fascinating dichotomy,” Colton said. “On the one hand, since the disastrous recession of 1981-82, there has been a dramatic period of economic recovery, growth and stability as well as a housing boom.
“That is the good side. On the other side, housing policy has been downgraded as a national priority in the last eight years. It is significant that the budget allotted to the Department of Housing and Urban Development for assisted housing decreased from $27 billion in 1980 to $8 billion in 1988, a drop of 70%,” Colton said.
“At present, there are more than 20 specific pieces of housing legislation that will be on the table in 1989 for serious attention by Congress, dealing with home ownership and affordable housing, expansion of FHA limits in high-cost areas, changes with respect to down payment, tax exempt-bonds, rental housing, homelessness, thrift industry assistance, mortgage interest deduction and regulatory reform at state and local level relating to supportive infrastructure and impact fees, “ Colton added.
Bush Has No Choice
The issue of infrastructure was pegged by Connell as “the real culprit that is seriously eroding our future,” and he added that nationwide, between 1988 and the year 2000, more than $900 billion will be required for highways, bridges, mass transit and airports, another $500 billion for health care utilities, resource recovery and waste disposal facilities, and more than $500 billion for lower- and middle-income housing and local schools.
Stan Ross, co-managing partner of Kenneth Leventhal & Co., who spoke on tax changes, said: “Bush has no choice but to deal with the tax issue and that has to affect real estate directly or indirectly.”
Members of the National Economic Commission, a bipartisan panel expected to report on their findings by March of next year, Ross said, now have their own personal computers with a built-in program titled the “deficit reduction package for the United States” offering 23 tax-increase options built into the program. Each member will enter additional options and juggle for the best results.
Ross reminded his audience that 1988 is not over and that the 28% tax rate is still available. “My advice is maximize income. Assume that Congress is going to be looking for more tax revenue and that shelters and personal interest deductions will be phasing out.”
Economic Slowdown
Robert Parry, president of the Federal Reserve Bank of San Francisco, termed the performance of the economy during “the longest peace time expansion in the post-war period” extraordinary and said “chances of recession in 1989 appear to be quite slim, though more than likely the economy will slow down . . . .”
“We cannot afford to repeat the same growth rates that characterized 1987 and 1988 without seriously raising the prospect of a higher future inflation. Unless growth is limited to less than 2 1/2% per year for the next several years, inflationary measures are likely to be reignited.”
In a later session, keynote speaker Sen. Jake Garn (R-Utah), suggested other avenues for new revenue besides taxes and blamed budget deficit problems on too much spending. “A large percentage of deficit is interest that must be paid on past deficits and 70% of the present budget is for entitlement programs.” His proposal was an across-the board freeze for about a year.
