Norton: The challenges that lie ahead for 2020

Bill Norton

Sitting down to write this between Christmas and New Year’s, three thoughts came to mind. First, 2019 flew by and while there was (and is) plenty of political drama, the economy maintained a steady course – not too hot but not too cold.

Second, I have been sensing (and predicting) a correction or “reset” for at least six months. I even said it would come in 2020, although it might not be recognized until 2021 on a retrospective look back. It is ironic with all of the Big Data, the cloud and huge algorithms that it still takes a year or more to finalize the quarterly economic performance numbers.

The third thought is that the U.S. prospers in a mediocre way. If Europe or China were firing on all cylinders, we would not look so hot. This is due to timing and to luck – one example is a bombastic president threatening significant tariff increases, which end up much smaller due to regulations and a bureaucracy that simply moves at only one speed.

Returning to the big picture for 2020, it is likely to be more of the same – a bumping along at a moderate/tepid pace. There is still a great deal of “financialization” going on, such as stock buybacks that increase stock prices but do little or anything for the economy, either for production or productivity.

Unemployment is at an all-time low, but other than increasing (vs. decreasing) immigration, there are few fixes. The demographics give us fewer workers, and these younger folks come with a different view of things. My son, who manages a team of software engineers and designers, got a text from the youngest member of the team telling him that he could not come into the office because his cat did not feel well! The equation is further complicated by the mismatch of skills (and aptitudes) with positions available. There is no quick or immediate fix to this situation.

Another challenge is affordable housing. The costs are too high, production is constrained and demand is not reduced or relieved. This is another challenge without a quick fix.

In a recent study, the Counselors of Real Estate (of which I am one) noted that Oregon has just passed statewide rent control (followed by California). This study compiles a comprehensive survey of multifamily development issues such as land and construction costs to environmental and affordable housing restrictions. The survey results were tallied and “mapped” out for many U.S. metro regions.

For Charlotte, N.C., a relatively “young” market, approval timelines, environmental restrictions, community involvement and infrastructure constraints were the most restrictive, none of which is easy to fix. In addition to these four, land and construction costs (which are actually fairly low and competitive in the Carolinas), available land (again more there than in older, denser, built-up cities), affordable housing requirements (some are mandated under “inclusionary” zoning), density and growth restrictions, the zoning entitlement process and the local political complexity all come into play (for more information, visit naahq.org/news-publications).

The array of development issues varies with each metro, as each is different by age, size, land availability and household capacities. One example, the older Boston metro, which has several submarkets, is far more complex in restrictions than more suburban Middlesex County.

This model and “mapping” is the tip of the iceberg. The concepts are informative, but the data are complex. To get back to the key issue – the shortage of productive labor – will we make progress on actually building workforce housing.

Lots to think about in 2020.

Bill Norton, president of Norton Asset Management and an honorary member of AIANH, is a Counselor of Real Estate (CRE) and a Facilities Management Administrator (FMA). He can be reached at wbn@nortonnewengland.com.