No News IS News
Steady Growth Predicted for LA Market
Zoning & Transit Keys to Generating Affordable Housing
Article by Peter Strauss of Iconic Investments.
Peter Strauss of Iconic Investments attended the UCLA Anderson Forecast on June 13, 2017. This forecast was focused on "The New Los Angeles Urban Landscape and the High Price of Housing." Here are Peter's takeaways from the conference:
With all of the negative news focused around the White House and other countries, like Russia and China, I am happy to report that the sentiment at the latest UCLA Forecast was rather optimistic. Here is what the various economists had to say about the Los Angeles economy and its housing markets.
Senior UCLA Economist Ed Leamer's National Outlook
Ed Leamer, senior economist for the UCLA Anderson Forecast, addressed the question most frequently asked of economists: When is the next recession? Well, good news! There is no foreseeable recession in the near future. Typical signs of recession are: an inverted yield curve, a decline in housing starts and sales of autos and light trucks, and the end of overtime in manufacturing. Further, there is no signal in either the bond or stock markets that a recession is on the horizon.
Leamer predicts GDP growth of 2%, inflation of 2% or less, and an unemployment rate of 4.8%. Despite increases in the interest rate, inflation should continue to remain low, Leamer said. This is a result of low money velocity; people are holding on to their cash.
Senior UCLA Economist David Shulman’s Outlook
David Shulman, senior economist for the UCLA Anderson Forecast, said the current housing cycle can be characterized as slow-moving and sluggish -- unlike prior housing cycles that featured swift and strong rebounds. Tighter credit standards, weaker income growth, a hollowing out of the middle class, and delays in life events will continue to push housing activity higher.
The multi-family boom, meanwhile, is fueled by regressive zoning laws in employment centers that make it hard to build, causing supply to meet the demand, Shulman said. Year-over-year rent growth of 5%, however, is abating.
According to Shulman, there is a lot of money looking to invest in real estate -- both from local and international investors. As the retail landscape continues to change more dramatically, capital will leave retail investments and focus more prominently on multifamily, he predicted.
Economist Jerry Nickelsburg's California Outlook
Jerry Nickelsburg, senior UCLA Economist, said he is curious to see if the California Budget Proposal is in balance. The state is collecting $118 billion in revenues vs. spending $122 billion for the calendar year 2016-2017. Meanwhile, California is at full employment, with unemployment at 4.9%, the lowest rate since November 2006, and lower than the current rate in Texas, and labor markets are continuing to tighten.
According to Nickelsburg, here's what is affecting California's economy:
- High home pricing is discouraging people from moving to California.
- Threats of deportation are negatively impacting the agriculture and non-durable goods sectors.
- The defense stimulus is late (if ever).
- Infrastructure spending (public/private) takes years to happen; therefore, it's being postponed.
- The travel ban is putting a damper on international travel into the leisure and hospitality sectors.
- Seaport traffic is steady with imports exceeding exports.
- Air Cargo -- both exports and imports -- has increased; this will help with economic growth.
- California home building is growing at late 1990s levels; the construction industry will continue to expand.
Predictions:
- California will continue with slow and steady economic growth -- slightly faster than the rest of the United States.
- Unemployment will decrease from 4.9% in 2017 to 4.5% in 2018.
- Personal income will grow (Y-O-Y) from 3.1% in 2017 to 3.3% in 2018.
- Housing permits will increase from 105,000 in 2017 to 115,000 in 2018
THE AFFORDABILITY PROBLEM
Affordability, Infrastructure and Growth in Los Angeles was the title of a four-person panel that addressed the issue of affordable housing in Los Angeles.
According to Mayor's Office Housing Policy Specialist Ben Winter, LA Mayor Eric Garcetti’s vision is to have equitable housing with no displacement of residents.
The mayor's five initiatives toward achieving that goal are:
(1) update 35 Community Plans every six years,
(2) build 100,000 affordable housing units by 2021,
(3) work with the private sector to build more affordable housing,
(4) expand Zoning Measure JJJ (increase FAR with reduction in parking requirements), and
(5) require a housing linkage fee for market-rate developments.
Speaking on the housing panel, UCLA's Ziman Center for Real Estate Director Stuart Gabriel said, on a metropolitan level, the city needs to ease land use regulation and increase densification to stimulate the production of affordable units.
In addition, Gabriel said, the city must further expand the transportation infrastructure. That will open up new supply of housing where land costs are low. Transportation is the way to create affordable housing supply.
“With one-third of renters in California paying 50% of their income in rent, people will need to move to more affordable areas," said Gabriel.
PETER STRAUSS
Iconic Investments
16530 Ventura Blvd
Suite #409
Encino, CA 91436
T: 747-444-3303
E: peter@iconicinv.com
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