The office real estate crash will be so sharp and deep that Capital Economics thinks office values are unlikely to recover by 2040
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fortune.com
The research firm’s top property economist likens the decline in office demand to what malls have experienced over the last six years—and sees a similar outcome.
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Those are all good things for economies! They offset demographic declines.
Well, immigration is good for the GDP, but the GDP is a terrible measure of outcomes for citizens. For example, almost all the GDP gains of the last 40 years in the US have gone to the top 10%. So for the 90%, they've had to endure all the costs of high migration, such as high house prices, but none of the benefits.
Would the inverse be true? Would reducing the GDP therefore increase outcomes for citizens?
Rising or falling GDP is not a good measure for the benefit of the population if the distribution of the GDP in the population is not taken into account.
The average GDP of pretty much all western nations has been rising for the past 70 years.
However, in the last forty years the share of GDP for the average western citizen (mostly through the static or failing real value of wages) has, at best, remained static and in several places fallen.
To put it another way, nations have become wealthier while most of their people have not.
So while GDP growth reflects national economic progress, it doesn’t necessarily ensure improved welfare for all citizens, particularly in light of the increasing income inequality seen in many societies.
Challenges related to demographic shifts, notably aging populations in Western countries, can further exacerbate these issues, potentially leading to wage stagnation and straining public services. However, immigration, especially by young, educated individuals, can help mitigate these demographic challenges. These immigrants contribute significantly to the economy, the labor market, and notably to the tax base, which can help alleviate these pressures.
Young, educated immigrants often contribute more in taxes than they receive in public services over their lifetimes. This positive fiscal impact can be channeled into public services and infrastructure that benefit all citizens.
In terms of real estate and housing, it’s important to understand that the housing market is influenced by a myriad of factors beyond immigration, including interest rates, building regulations, local zoning laws, and broader economic conditions. While increased immigration could theoretically drive up housing demand, it’s just one piece of a complex puzzle.
Further, the broader economic benefits brought by immigrants, like strengthened public finances and economic vitality, can indirectly alleviate housing concerns. For instance, the taxes paid by immigrants can be invested in public infrastructure and affordable housing projects that benefit existing residents. Additionally, the economic activity stimulated by immigrants can drive investments in residential development, potentially increasing housing supply.
Therefore, while concerns about housing demand are valid, they need to be contextualized within the broader economic and policy landscape. Immigration and real estate markets interact with each other, but they also operate independently and are shaped by a multitude of factors. In this regard, it’s essential to leverage the economic benefits brought about by immigration effectively to ensure they benefit all citizens, including in areas like affordable housing.
It's a good thought experiment, but perhaps a better one would be, "had GDP not increased over the last 40 years, what would be the impact to the lower and middle classes?" In such a scenario, I think there is a real risk that wages would not have kept up with inflation. In which case, the ability for Americans to purchase foreign imports would be materially impacted. I.e. more expensive televisions. So, on closer inspection, perhaps that is a benefit of high migration to the lower and middle classes.
Of course, this needs to be balanced with said higher house prices (among other issues). In 1980, the house price to income ratio was 4.69. It is now 7.76. This is national, so the situation is much worse in cities. As housing is typically the largest purchase anyone will make, it's not clear to me that this trade is equitable. I would give up cheap televisions if I could purchase my house for much less.