From Water to Housing: Issues to Watch

WASHINGTON, DC—It appears that the question of an interest rate increase has been pretty much settled: the Federal Reserve will start normalizing the federal funds rate soon, possibly by year's end, and the consensus among industry economists is that the rate of increase will be gradual. However, there are other issues to consider, and the latest Emerging Trends report from PwC US and the Urban Land Institute poses them.

“The underlying question is how the generation whose entire business career has been shaped by a low-interest-rate environment will respond to the upward movement in the price of money,” according to the report. “Will higher rates alter behaviors, to what degree, and at what threshold? Keep an eye on such questions.”

The effect of interest rates increases, as opposed to the timing of such increases, is one of a handful of issues—as opposed to trends—that the report advises industry members to keep on their radar screens. Another is water use. “The historic drought afflicting the western United States has brought cascading impacts to the region—and to the nation,” according to the report. While the agricultural sector is the most visible in terms of the drought's impact, Emerging Trends notes that it's far from the only industry being affected.

“Semiconductor plants require enormous amounts of water for operations, as do the 'cloud storage' data centers now so integral to the internet,” the report states. Snow-making machines consume large quantities of water “to keep the region's resort and recreation businesses humming. Wildfires, meanwhile, have scorched more than 87 million acres in the past decade—a land area equivalent to the state of New Mexico—not only in forests, but also in residential communities throughout the West.”

Accordingly, the report notes that cities whose economic energy has been driven by population increase will have to confront “limits on growth that are defined by water availability and cost. Although a strong El Niño for the winter of 2015–2016 is forecast to bring much-needed rain, the water deficit west of the 100th Meridian is a factor that real estate should watch closely in the years ahead.”

Although Millennials as well as Baby Boomers are getting the lion's share of attention by both marketers and developers, it's the middle children—the so-called Generation X—that will be stepping into leadership roles in business in the next few years. And that has implications: The generation born between 1965 and 1980 came of age “in the aftermath of the savings-and-loan crisis, in dire times for real estate,” according to the Emerging Trends report. “Few came into the business during the early 1990s, and even fewer have the benefit of real estate graduate education. Watch for the implications for leadership in the industry going forward.”

The question of affordability in housing also looms large. The US Supreme Court has ruled that local communities can take legal action to address disparities in housing, and the Department of Housing and Urban Development now requires local communities to “affirmatively further” equal housing opportunity or risk losing out on federal funding. “This could alter where affordable housing is built, and where households in need of such housing may move,” the report states.

Last but certainly not least, the PwC/ULI report also recommends a forward-thinking approach on jobs—not creating them, but filling them. “This includes succession planning for executives in the boomer generation, who need to groom Gen-X leaders, who are relatively fewer in number,” according to the report.

More generally, "managers need to prepare for the era when new Gen-Y workers are outnumbered by those retiring. Increasingly, that will mean that promoting from within will make more economic sense than competing for outside talent. And with employers already lamenting the difficulty of finding workers with the right skills, worker development has to be part of the solution.”