5th of 5 parts on climate change and real estate
New World
Climate change has brought us to a turning point in real estate as important as the invention of skyscrapers or the conception of suburbia, perhaps as important as the settling of the west. Real estate is beginning to be considered part of the ecology, a climatological factor over which government will be
expected to exercise more control. Real estate is also newly seen as part of the energy, transportation, and technology sectors of our economy — utilizing 41% of our domestic energy, influencing automobile use, and requiring innovative means of conservation.
Cost
Additional regulation is both inevitable and attended by new expenses. Real estate already bears a lot of taxes (property taxes, income and gains taxes, excise, franchise and rental taxes). Now we should expect higher ones and more of them. Not too long from now there will be some kind of carbon tax, surcharges on energy consumption, solid waste and waste water treatment, extra fees for entitlement, impact, use and design, plus mandatory retrofits, additional wind and flood insurance and higher premiums. Together with increasing cost and regulation, we can expect faster and greater economic obsolescence, too.
Benefit
But for all of that, we are at a moment of great opportunity in real estate, with inexpensive capital in great supply, a lot of financially and physically distressed property, a population with growth potential, useful new technologies, the will to invent more, and the wherewithal to develop them — all in one of the world’s healthiest major economies. Buildings not even 30 years old are rapidly becoming
obsolete and opening space for new competition. Transit oriented development and high-density mixed-use projects are no longer futuristic. They are big money-makers. Infill and adaptive reuse have become valid competitive strategies, and not just occasional work.
Sea Change
Returning to our initial theme — Hurricane Sandy made no difference to Mitt Romney’s Presidential campaign, but the storm seemed to evoke the new scientific, social and political reality that has been developing for years in the U.S. It would be wise to view it as the signal
of a new direction for the economy in general and real estate in particular.
We have said this before. Building owners are making a big mistake if they do not account for the increased cost of energy, the likely impact of regulatory compliance, and the preference of their tenants for efficient rental space. Mitt did not lose because of Sandy, but he was on the wrong side of Sandy, and any 2016 candidates who side with Mitt have lost already. They are spitting into hurricane force winds. Politicians and real estate owners who don’t already know this had better learn it soon.
Part 5 of 5
Part 1: HURRICANE SANDY … AND 2016
Part 2: POLITICAL CLIMATE CHANGE
Part 3: THE SMART MONEY IS ON SCIENCE
Part 4: CHANGE
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IN THE REAL ESTATE CLIMATE