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Is This the Worst Ever? Every time the U.S. economy slows, pundits claim that it is the worst recession ever and will drag on much longer than past recessions. These claims are frequently made when it is not even a recession, or after the recession is over and the economy is in the early stages of a recovery. The "recession" of 2008 is no different. By comparing 15 macroeconomic indicators in 2008 to the same metrics during the previous six recessions, the authors show that the Great Capital Strike of 2008 is so far the mildest economic downturn of the last forty years.
Explaining the United States' Uniquely Bad Housing Market Despite national economic and real estate market trends that are not unique in U.S. history, the housing market woes of the United States appear to be developing into a historic, adverse episode. Indeed, other countries have experienced the same forces and find themselves with nowhere near the level of U.S. economic repercussions, and their housing markets are not nearly as threatened. The authors argue that the United States experienced a unique expansion of credit and deterioration of residential mortgage lending standards. This shift in the credit supply temporarily fueled housing prices beyond levels justified by favorable demographic and macroeconomic conditions. The subsequent withdrawal of credit has resulted in severe housing market declines as well as contributed to the adverse macroeconomic conditions in place today.
High Gas Prices and Urbanism The price of crude oil has gone from a low of $16 a barrel at the beginning of 1999 to more than $140 in the summer of 2008. If energy prices continue to rise-or even if they merely stay at high levels for an extended period of time-that will have an effect on urbanization patterns. Compact cities, which have mass transit, walkable neighborhoods, concentrated services, and energy-efficient housing, may benefit. Suburbs will have a more difficult time adjusting and will probably have to consider densification and more efficient buildings. Close-in, older suburbs may have a competitive advantage; far-out exurban development is likely to be less favored. Much depends on the possible development of alternatives to gasoline-powered automobiles. Much of the impact of expensive oil will be offset by the use of smaller and more efficient cars, and by technological improvements to the efficiency of heating and air-conditioning.
Where Are We Going? Our current economic turmoil in many ways resembles the typically cyclical "ebb and flow" that will always accompany a loosely regulated free market economic system. In this particular instance, the downturn has been seriously exacerbated by governmental acts of commission and omission that should be faced and resolved. How long the downturn will last, how deep it will be, and what the long-term ramifications will be depend on governmental actions yet to be taken. The prodigious strengths of the U.S. economy, U.S. institutions and the U.S. public assure us that eventually "this too shall pass," but much unnecessary anguish will be apparent in the meantime.
Value Creation Opportunities for Commercial Real Estate Owners Markets can be fickle, as evidenced by recent developments in the commercial real estate debt and equity arenas. Eighteen months ago, the outlook for real estate owners could not have been better. The industry was in the midst of a seven-year run of stellar returns. Cap rate compression, fueled by "cheap" debt and healthy economic fundamentals, was driving up asset values across all sectors. Capital was flowing into real estate in record levels, boosting returns even further. Today, commercial real estate capital markets, particularly on the debt side, are frozen in response to the capital crisis. With "cheap" debt no longer available and the economy heading towards a possible recession, the termination of transactions has led to markdowns in the market value of REIT stocks. As a result, equity REITs generated negative returns in 2007, underperforming the broader equity market for the first time since 1999. These negative returns are particularly frustrating to managers, as operating performance, by most traditional metrics, was strong in 2007. Many public companies saw their share prices decline despite posting double-digit gains in funds from operations. Are company valuations purely a function of real estate and capital market conditions rather than management strategy or efficiency? If so, how can managers separate their companies from the pack? To answer this question the authors conducted an analysis to identify the "real" drivers of shareholder value creation.
Recession-Proof Retailing Consumer spending has steadily declined since the beginning of the year, following a weak Christmas season. In a May 2008 survey, 58 percent of consumers agreed "We are in a recession," and indicated they plan to curb spending or carefully consider how they spend. A recession is a time for retailers to go back to basics, that is, to get the merchandise right, communicate what the product does (with the right message), and show why the consumer needs the product. The author presents a number of retailing strategies to accomplish these ends: understanding the desires of the consumer, such as "This will last a long time and never lose its value," "I will be able to share this with my family," or "It's a classic item that can be used every day"; new retailing formats such as pop-up stores and a more effective online presence; and revamped outlet stores. A successful business doesn't rest on its laurels. Instead, it refreshes itself in order to stay compelling and relevant, tapping into an evolving audience with evolving needs.
Stylistic Trends in Multifamily Housing Traditional as well as Modernist designs remain a viable option for the developers of multifamily high rise buildings for the simple reason that consumers demand them. This paper discusses two current stylistic trends in the design of urban apartment buildings: a traditional model based on the successful prewar apartment building built in New York in the 1920s, and the Modernist, all-glass tower. Empty nesters returning to the city are looking for buildings that reassure by invoking continuity with tradition. People newly single or seeking a second home in the city are attracted to contemporary designs that, however, are not excessively aggressive and blend with their surroundings. Young professionals who don't want to live in the suburbs seek an environment on the cutting edge, emphasizing the excitement the city has to offer. The author describes six downtown apartment buildings currently designed for Philadelphia that exhibit all these tendencies.
Why Government Planning Always Fails Long-range, comprehensive government planning does more harm than good, especially when planners attempt to plan private property. Long-range planning fails because success requires the accuracy of future forecasts. Those forecasts can never be accurate, yet special interest groups lock the government into the plans. Comprehensive planning fails because the areas being planned are simply too complicated for anyone to understand. Government planning of private property fails because planners have no incentives to find the optimal use of other people's property. Government planning can work if it focuses on the short-run, the narrow missions of agencies managing such things as sewers, roads, or recreation areas, and if the agencies receive feedback, such as user fees, that rewards them for doing the right thing and penalizes them for doing the wrong thing. When stretched beyond these limits, government planning is a danger to a nation's freedom and economic health.
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