How does an election affect the real estate market?
October 24, 2016
Oy! An election year.
As commercial real estate brokers, every four years we experience an odd phenomenon where the market first slows, and then crawls, and then stops … and then jumps and starts, all inexplicably, until we realize it's a presidential election year, and people are just plain scared. As scary as the upcoming election may be, how does it fit into forecasting the future market? There are some preconceived notions about presidents from one party having a better track record on the economy than the other. But in fact, that's not the case: employment growth has varied by president and no party can claim it's better at growing jobs. In these studies, analysts looked at total employment as a gauge of how well the economy was managed.
The reality is if one party does prefer a smaller government, it's not evident in employment trends. Although three of the earlier Democratic presidents (Kennedy, Johnson and Carter) added considerably to the government labor pool, the last two Democratic presidents (Clinton and Obama) shed government jobs, even as the economy expanded at a healthy pace. Likewise, federal government jobs grew considerably under Reagan, but shrank during the Bush 1 administration.
So what does this mean for the U.S. and Washington, D.C. market outlook? What does it mean for northern Nevada real estate values? Virtually nothing.
What matters are numbers like those released in NAIOP's (National Assoc. of Industrial & Office Properties) September Sentiment Index, which does show the commercial real estate market does appear to be slowing a bit. Factors contributing to this include employment, occupancy rates, and available debt, all down slightly on a national level. What's interesting is yet again, Northern Nevada is bucking national trends. Our employment figures and occupancy rates continue to improve incrementally each month. Locally, available debt also seems fluid and plentiful. There are less than 10 full time commercial real estate brokers in Carson City, and if you speak to any of them, they will tell you we're busier now than ever.
Perception is reality, though. If common perception is the market is scary, the economy is scary, and the future is scary, we all hold our money tighter and hunker down. One of the components the NAIOP report takes into consideration is the sentiment index, when respondents are directly asked what their general sentiment is regarding conditions in the commercial real estate industry for the next 12 months. Responses were an average of 2.5 percent more negative compared to six months prior. There's no doubt politics play a vital role in this negative sentiment, warranted or not.
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One respondent commented, "The uncertainties brought about by the upcoming election is the most stratified in terms of future business environment policies in my lifetime." In reality, you could likely go back in time and find someone who says something identical — 10 years ago, 20 years ago, 40 years ago. Every election divides us and frightens us into believing if the "black hats" win, the sky will fall.
In real estate we often quip: "If you're not at the table, you're on the menu," meaning if you're not engaged for your clients, you can typically expect your livelihood and industry to show up on the chopping block when it comes time to find new revenue sources (taxes and fees). This has been a lesson well-learned by the real estate industry. NAIOP is one commercial real estate organization which is active in state and national politics, and the National Assoc. of Realtors (NAR) is the second largest national lobby in the country, right behind the U.S. Chamber of Commerce. Why? It's no secret: Politics affects business and real estate, plain and simple.
Yes, there will be a new president taking office in January 2017, and turnover and change will occur as it does with every new administration. But barring a black-swan event this shouldn't alter the national or local economy dramatically over the next few years. Nor should it change the dynamics of how the economy impacts the real estate market. The real estate market is susceptible to hundreds of different components, all of which are in constant flux, affected by countless contributors. How much or how little any new politicians affect these variables is arguable.
Brad Bonkowski, CCIM and Andie Wilson, CCIM are owner/brokers of NAI Alliance Carson City, a commercial real estate brokerage. They can be reached at 775-721-2980.