The Urban Land Institute (ULI) held its annual fall meeting Nov. 1-4 at the Los Angeles Convention Center. The meeting offered a chance for real estate professionals to learn about various trends and issues impacting the real estate industry.
At the convention, ULI teamed up three distinguished economists to discuss issues relevant to the economy and the real estate industry. The panel featured Jeremy Rifkin, president of The Foundation on Economic Trends; Nariman Behravesh, chief global economist for Global Insight; and, Catherine Mann, a senior fellow with the Institute for International Economics.
The three economists expressed a wide range of opinions, focusing on energy, housing, quality of life, education and population.
One of the most interesting topics of the seminar was the impact of rising oil prices and its impact on the nation's economy.
Rifkin, author of "The European Dream, The Hydrogen Economy," pointed out that although the United States economy experienced a 3.8 percent growth in its third quarter even with the recent gas hikes, the impact on the nation will soon be felt during the winter months.
Consumers will feel the impact at the gas pumps and on their heating bill, and "when this happens, consumer confidence will go down," he said. He added that currently, consumers are disregarding the increases in gas prices and digging into their savings to keep the economy moving.
Mann said that household savings have been declining over the last 25 years. Yet, the capacity to borrow and spend is not diminished, as consumers are still able to find ways to borrow money.
"The U.S. economy is run primarily on oil," Rifkin said, adding that with just four percent of the world's population, the United States consumes one third of the world's energy resources.
Rifkin is concerned that the United States has not yet woken up to the oil crisis and that by 2007, half of the available oil will be used up.
Behravesh, however, stated that more oil is available, enough for 100 hundred more years, but that there is not a lot of investment in exploration to find the oil. He reported that energy prices have not kept up with inflation and that oil should be priced at $3.20 a gallon if adjusted for inflation.
Mann said that a chief concern for many consumers is whether wages can keep up with the standard of living. Wages are not currently keeping pace with the increasing price of products.
Rifkin reported that productivity increased from 2000-2004 but that wages did not go up. With inflation likely to rise, purchasing power will decrease and unemployment will rise, he said.
"It is a very grave situation," Rifkin said. "There will be lots of foreclosures over the next few years unless we raise wages."
Mann noted that the United States has a housing bubble every decade, but that the current housing bubble will only slowly decrease consumer spending.
"Some markets in the United States will see home values decrease, but at a national level, we have not had the average home price decline in four decades," Behravesh added. "At national level, if prices fell 10 percent, the United States GDP slows down two to three percent. It would probably be just a slow down and not a recession."
While the economy has shown resilience in the face of shocks, scandals, wars and terrorist attacks, the upward trend won't last, said Mann.
"The economy has to slow down," she said. "You can only stretch the rubber band so far." However, she added that the situation is not dire because the rest of the world is dependent on the United States to purchase their products.
Strong consumerism in the United States combined with a lack of policies in other countries that would encourage internal product consumption mean that the United States and the rest of the world have a co-dependent relationship. If the United States economy slows, so do the economies of the rest of the world.
Rifkin cautioned that the government and consumers need to start saving.
"Family savings in 1990 were at 8 percent of income. Now it is under zero," he said. "We are debt ridden. We are in a delusional state. We need some controls against capital. We used to be the most egalitarian nation. Now we rank 24th in income disparity. Only Mexico and Russia are worse in the industrialized world."
With 50 percent of the labor force having no more than a high school diploma, the income disparity is not a surprise, Mann said. She added that the United States is currently graduating a lower percent of students that it had in the 1960s.
On a more positive note, the United States has 17 of the 20 top universities in the world.
Rifkin reported that there are 18 countries that outperform America in elementary and secondary education, and that Europeans consider education spending an important quality of life issue.
"We are 28 percent richer per capita than Europeans by GDP measure but by quality of life we are passed up," he said.
But Mann stated that while labor markets in Europe may offer more benefits, 25 percent to 30 percent of young people don't have a job.
Europe also differs in that their workforce population has not kept pace with their retirees.
With low fertility rates, "Europe would need 100,000 immigrants in next 50 years to meet population needs," Rifkin said, adding that if Europe keeps at is current pace, there may be two retirees for every working person by 2050.
Behravesh reported that America is aging less slowly than other nations, as birth rates are higher and immigration help grows the population.
Mann pointed out that with an aging work force, corporations are trying to figure out how to deal with the aging baby boomers and the desire many of them will have to keep working, though perhaps at reduced hours. The way that corporations and aging workers will deal with healthcare insurance and work hours will have to change.