Real Estate Developers Going Back to School

Yes, it is true; many real estate developers are now going back to college.  Are they going back to learn a new trade? Learn how to better manage their current business?  While the answers to both those questions in some cases may be true, the main reason why they have returned to their college campuses is to build.  These developers see a great opportunity to build student housing that is designed around the students’ wants and needs. 

American Campus Communities Inc. is one of the largest and leading developers of student housing in the United States.  They currently have over $156 million invested in 4 current student housing projects set to be completed by Fall 2012.  Their housing projects are located in Arizona, Georgia, New Mexico and Texas which combine to house 3,249 beds. 

But aren’t we in a recession? Isn’t the real estate market dead?

The answer is yes and no.  Yes the economy is struggling, but no the real estate market is not dead….not completely.  While some markets of real estate, such as the residential housing market, have been stagnant following the devastating housing bubble burst a couple years back; one market that has seen steady growth in the past 20 years is student housing. 

The recent article featured by the Urban Land Institute describes the reasons developers have decided to build in such a market.  

The two main reasons for developers to build student housing are:

          1) Rising rents

          2) Increasing enrollment at universities

According to the ULI article, rents are projected to increase 2 to 6 percent in 2011.  A rental rate increase in that range could mean smiling faces for owners and developers.  Also, universities in general have seen an increased number of applicants and attendees; the number is continuing to grow. This growth is due to the current state of the economy which has been witness to many job losses.  Many victims of the economy are deciding that more education will help their chances of gaining another job in either the same industry or a new one.

Another economic factor working in favor of these developers is the very high occupancy rate for student housing.  Most major universities have essentially a “micro economy” surrounding them which is not greatly affected by the national economy.  The reason for this is the high-density of students living around campus.  It is almost certain that there will always be students at these universities and they need to live somewhere. 

Developers also realize that the limited housing stock in the university areas is becoming outdated. 

"Today’s student population is looking for a student housing experience that replicates the individual’s experience of living at home. Many high school students have grown up not sharing a bedroom and often times a bathroom.  Additionally, not only do many grow up enjoying community amenities such as swimming clubs and fitness facilities, but their multimedia experiences at home have become increasingly elaborate."

They are catering new developments to be a great social experience with many features and amenities that attract students that current student housing cant offer.  

While I do see the construction of new student housing projects as a benefit for the universities, the students and the micro economies surrounding the schools, I have one concern…overbuilding.  I fear that the universities micro economies might witness a similar housing crisis as the national economy if developers overbuild these areas.  I could only hope that these developers are wise enough to run market studies and correlate with the university to quantify the need for housing.   Lets hope that these developers decide to brush up on the real estate markets and feasibility classes while revisiting university campuses.

Should Government Regulate the Mortgage Industry?

After the recent collapse of the mortgage industry, there has been an on going debate on whether government should regulate and provide more oversight on the mortgage industry or let if be self-regulating.  Many people assume, prior to its near overnight downfall, the industry was not regulated by the government.

This is not true. The Federal Government has control over numerous agencies that affect the mortgage industry either directly or indirectly. Some of the agencies that did regulate at the time of the collapse include: the Federal Reserve Bank, the Department of Housing and Urban Affairs, the Federal Housing Administration, and State Governments, just to name a few.

So what was the problem?

The issue was not the matter if whether there was or was not regulation, it was a problem of efficiency and accountability.  With that many Federal and State agencies involved, it is difficult to point the finger and where the problem lies.  In this case, the problems were found in numerous agencies. 

In brief, the major issue was the fact loans were being issued to people to purchase homes that they could not afford with terms that would sooner or later cause them to default on their note. 

From an accountability standpoint, who is at fault?   Well…. the answer is not so clear.  All agencies could have easily figured out what was going to happen, but the fact was, the programs were successful and the economy was booming, so why stop something so good. 

In a recent article, an interesting point is made on the issue with the government regulation that now haunts our economy.

They are politicians not CEO's, and they don't ever do anything until something goes wrong and then they just run around trying to get on TV talking about how they are going to "fix" this so it never happens again.

I’m pretty sure we have all seen this before.  So the question is, what should be the government’s role on the mortgage industry, if any?  The answer is not one that could be summed up in a single posting, so I will leave it up to you to foster a solution and report to the economists who are boggled by this issue day in and day out. 

Robert Reich: The Economy and the Middle Class

When people think of public intellectuals, what often comes to mind are famous leaders and scholars such as presidents or leaders of countries and authors who comment on current issues concerning the economy, health and the society.  In fact, a public intellectual is held responsible for using their intelligence in a way that confronts societal issues and creates solutions to move past the issue at hand.  The role of the public intellectual is to address and respond to the problems of his or her society as the voice of the people. 


One man who is qualified to take on that role is Robert Reich.  Reich is a political economist who has held many positions in his life, but is currently passionate about finding solutions for our fallen economy. 

Robert Reich, born in Scranton, Pennsylvania, has started his political career from a young age and built an impressive education resume.  Reich earned his bachelor of arts from Dartmouth University graduating at the top of his class in 1968 which landed him a scholarship to Oxford University where he studied Philosophy, Politics and Economics. After earning his masters as a Rhoades Scholar, Reich then continued to Yale where he received a J.D. from Yale Law School. 


His affiliation with some of the most prestigious universities around the world did not stop as a student.  Reich later went on to teach at the John F. Kennedy School of Government at Harvard University, he taught Social and Economic Policy at Brandeis University and now currently is a Professor of Public Policy at University of California Berkeley’s Goldman School of Public Policy. 

Not only does Reich have a strong educational background, he also has picked up a thing or two regarding politics from his work experience.  In the early 70’s, he served as a law clerk for the Chief Judge of the U.S. Court of Appeals for Judge Frank Coffin.  After a short two-year stint as a clerk, he was appointed as the Director of Policy Planning Staff for the Federal Trade Commission in 1977 during the presidency of Jimmy Carter. 


In the more recent years, Reich has served as the 22^nd Secretary of Labor for President Bill Clinton is his first term as President.  Robert Reich and Bill Clinton were first introduced during their years at Oxford then once again at Yale.  Clinton was so fond of Reich’s way of thought, he actually used some of his ideas during the presidential campaign which got him elected.  The main basis of the Reich-inspired “Putting People First” 1992 campaign is stated in Clinton’s speech:

For more than a decade our government has been rigged in favor of the rich and special interests. While the wealthiest Americans get richer, middle class Americans work harder and earn less while paying higher taxes to a government that fails to produce what we need: good jobs in a growing economy, world-class education, affordable health care, and safe streets and neighborhoods. Economic growth will not come without a national economic strategy to invest in people and meet the competition. Today we have no economic vision, no economic leadership and no economic strategy.

Robert Reich firmly believes in this model where the middle class is the backbone of the economy.  In his video The Truth About the Economy in 2 Minutes and 15 Seconds, Reich breaks down the problems with today’s economy into 6 major points:

1)    Since 1980 the American Economy has doubled, but wages fell flat. 

The economy has doubled in size, but wages barely increased

2)    All gains from the economy go the super rich.

The top 1% used to take home just 10% of all income, but now that top 1% takes home nearly 20% of all U.S. income. The super rich have 40% of the nation’s entire wealth.

3)    With money comes political power.

All of this money at the top is given the super rich a lot of political power.  Specially the power to reduce their tax rates.  From 1980 to today, the top tax rate has decreased from 70%-35% and much of their income is considered capital gains which is subject to only a 15% tax rate. This means huge budget deficits.

4)    Huge budget deficits.

Tax revenues are down to less than 15% of the total economy.  In result, public services are being cut at all levels of government.  The effect of neglecting these services lead crowded schools, neglected roads, bridges and other infrastructure.

5)    Middle class divided.

The middle-class is competing against each other for jobs which brings up the battle between union and non-unions, public vs private, native-born and immigrant. 

6)    Anemic recovery.

The middle class is unable to borrow as it once did, no longer has the same purchasing power to stimulate the economy.  This leads to continued high unemployment and weak recovery. 

In conclusion, Reich states “ the only way we could have a strong economy is with a strong middle class.” He not only mentions this as a thought, but responds with reasoning and offers a solution. 

Robert Reich is the type of public intellectual that we need in this type of economy.  In an article regarding the future of public intellectuals, titled The Decline of the Public Intellectual, Dr. Stephen Mack analyzes the society’s need for the public intellectual.  In his concluding statement, Dr. Mack states:

           

 It is also, however, the obligation of every citizen in a democracy. Trained to it or not, all participants in self-government are duty-bound to prod, poke, and pester the powerful institutions that would shape their lives. 

This statement agrees with Reich’s opinion about how the small group of super rich have the most control in our economy.  Reich advocates for the middle class to fight for their rights in order to provide for themselves and a larger portion of income.  Robert Reich is a public intellectual that is passionate about bettering the community and objectively communicates the well being of the middle class.