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Emerging Trends That Will Shape Real Estate In 2019

Each year the Urban Land Institute and PwC present the Emerging Trends in Real Estate report, providing our industry with insight into emerging themes and forces that will shape the next 12 months across North America.

This year the report focused on three main themes; reinvent, rebalance and rethink, all  centered around the uncertainty facing housing as fast-paced technological and social change transforms how people are living and working. As the report highlights, “the real estate sector faces rising pressure to respond with new ideas by accelerating digital transformation, being more innovative with deal strategy and rethinking how it addresses affordability.” Embracing creativity and innovation is key for success as we move forward.

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Below we examine some of the big trends to watch that stood out to us at this year’s presentation:

REINVENT

The reinvent piece of the puzzle is all around accelerating digital innovation in real estate. As Andrew Warren of PwC pointed out, in 2004, 70% of respondents in the real estate sector thought tech would have no impact in the way real estate operates. Today, the industry is realizing it was wrong. Housing and real estate is not immune to the technological advances going on around us, and we have to work hard to embrace and catch up with trends that can help improve the process for everyone.

One major but not typically considered advancement is construction technology. When we think of property tech, we generally think of the sleek and flashy like virtual tours, smart home options and monitoring. As construction and trade shortages have a major impact on the speed at which homes are delivered, investing in construction technology can fill in the gaps to have a positive impact all the way through the home building journey.

The good news? Investments in technology are up 41%, which means industry leaders are realizing that if they don’t embrace tech, they’ll be left behind. This means better homes, condos and service for homebuyers.

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REBALANCE

Rebalance has a lot to do with what the real estate market can do to better serve you, the homeowner. As land prices, interest, government fees and timelines, labour shortages and tariffs make development more expensive, builders and developers need to rethink their development models and investments to be able to deliver an affordable, well-built product to the market that meets the current demands. Despite that grim list of factors above, this rebalancing can be achieved by diversifying, adapting, reinvesting and redeveloping existing assets. Particular for Toronto and Houston, redevelopment and infill development will play a huge role in the urban core’s affordability outlook. Another way technology is helping the industry to better itself, data analytics will allow companies to dig into large volumes of information and pull out actionable intelligence, responding to what people want and finding innovated solutions to get us there.

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RETHINK

Rethink deals with the issue on all of our minds: affordability. Although this issue is more prevalent in some markets than others, the bottom line remains the same; affordability is becoming a bigger and bigger hurdle in the markets where people want to live.

The industry across the board has accepted that “it’s time to move beyond efforts to limit demand by looking at the supply side of the equation and reexamining government interventions.” There is no question here that the government’s role is a key consideration, particularly in the Ontario housing market where government policy dictates the speed and volume of the housing construction process. And most markets agree that even among federal levels, the solutions have to be as varied and multi-layered as the market themselves. What works in Austin won’t work in San Antonio and what works in Toronto’s downtown won’t help in Hamilton. An open dialogue between different levels of government, homeowners and builders and developers has to be considered so that real solutions can be discussed.

Until then, what’s happening? The consequences of not properly planning for future housing needs may be severe. As the proportion of household income needed to service the costs of a single-family homes grows, downtown areas are at risk of millennials abandoning the urban core for the suburbs in search of more affordable housing, and then eventually leaving popular regions altogether.

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MARKETS TO WATCH

Texas came out as an obvious superstar on this year’s Markets to Watch list, with Austin coming in at #6 and San Antonio at #20. Why? A number of factors can be identified to speak to Texas success, particularly in the sub-markets of Austin, San Antonio and Houston.

FAVORABLE DEMOGRAPHICS

The demographic breakdown of the region’s markets is favorable. Austin, Houston, and San Antonio all have a significantly higher percentage of their population in the 0-to-24 and 25-to 44 age cohorts. This means the younger population is supporting good labor force growth. Austin and Houston in particular have labor force participation rates higher than the national rate. The labor force is also very productive, with GMP per capita exceeding the national average and business startup activity remaining high. The 2019 population growth rate in Austin is projected to be over three times the national rate

NOT IMMUNE TO AFFORDABILITY ISSUES

Despite the attractive housing rates, a lack of affordable housing was listed as an issue for Austin, brought on by sheer demand for the city. Housing development has also been slowed by the rising cost of materials and construction labor. These rising costs were cited as an area of concern in San Antonio.

JOBS, JOBS, JOBS

Job growth is key. Science, technology, engineering, and math jobs are projected to grow at a rate 73% faster than the broader job market through 2026. Thus, tech-heavy markets such as Austin remain high on the “buy” list.

MULTI-FACETED APPEAL

Despite the South’s new-found popularity, the reasons behind it are not always the same. Texas is seeing young people and retirees flowing into the region. These opposite-end-of-the-spectrum demographics are looking for very different lifestyles, but finding a common place that can fulfil their needs. “The South’s Central West region markets are expected to have some of the strongest demographic and economic performance in 2019; this performance will offer good investment and development opportunities in the Texas markets.”

 

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Other insights

The talk wrapped up with a panel discussion with some of the leading players in our industry today. A few gems from that discussion were from Cheryl Shindruk, Executive Vice President of Land Development at Geranium and George Carras, Founder and CEO of R-Labs Canada. In their option, a few key considerations and possible solutions to upcoming concerns are:

  1. Talent– We need to turn to our education institutions to close the skills gap in labour (advances in technology will help this as well).
  2. Demographic Trends – We need to be prepared for the two major landslides that will dictate housing needs in the near future, the baby boomers retiring and downsizing and the millennials starting families and looking for larger homes.
  3. The role of government – even if the industry is embracing technology, the intrinsic link between government and real estate means we need government agencies and policies to also catch up with new advances in technology to really make a difference.
  4. Climate change – increases in natural disasters and the costs and housing loss involved is a consideration we can no longer afford to ignore. It will play a real role in our future and we need to be prepared. A market that’s showing leadership in this realm is Houston. In spring 2018, Houston’s city council made the first changes to flood regulations in ten years, requiring new construction and retrofits to be two feet above the 500-year floodplain.