Our Deep Divisions

HEALTHCARE Early 2021 Gallup polling shows 80 percent of Americans personally worrying about the availability and affordability of healthcare, a majority worrying "a great deal". [...]63 percent are dissatisfied with the current state of the healthcare available to them, 41 percent being "very dissatisfied".2 In late November 2020, after the election, a majority of those polled (56 to 42 percent, with 2 percent having no opinion) maintained a view that it was a responsibility of the federal government to assure that all Americans have healthcare coverage.3 In the past 14 months we have seen two major successes: the Operation Warp Speed vaccine development program in 2020 and then the deployment effort in early 2021 that has now seen about 162 million (48.8 percent) fully vaccinated and about 56.3 percent of the U.S. population having received at least one dose as of July 22nd.4 And yet, when it came time for a vote on the COVID-19 relief bill in Congress, there was a virtually total party-line split. To the degree that recovery of user-demand in commercial properties depends both upon employers, workers, and property owners/managers developing confidence in public health measures and in the general population's ability to be secure in maintaining its wellness, the dysfunction in Washington (and across states) in pragmatically focusing on American healthcare acts as a drag on the economy and on real estate, which houses the day-to-day functioning of that economy. The National Association of Home Builders has stressed how the broken immigration system has hamstrung the production of housing, delaying deliveries and driving up prices.12 Building service workers, through their union (SEIU), are calling for an immigration approach facilitating immigrants' full participation in the economy as an immediate priority. [...]Congress is more divided on many issues than is the American public as a whole.

Economic Structure, Public Policy, and Private Decisions

The "headline numbers" flowing from the Bureau of Labor Statistics, the Census Bureau, the Bureau of Economic Analysis, and other agencies provide ambiguous information unless put under the microscope. [...]holding Fed-managed interest rates near the "zero bound" and keeping its balance sheet expanded at nearly $8 trillion in assets places structural pressures on monetary policy in an economy whose outlook remains unpredictable.8 Fiscal policy, meanwhile, has its own challenges, some of which are economic but most of which are political. Conversation around Federal spending has been couched in terms of "stimulus" and "recovery", but both of those terms are mistaken - reflecting the misapprehension that the pandemic disruption can be viewed as a typical recession susceptible to the usual remedies. Besides the continuing epidemiological risk, the ongoing structural problems of income inequality, technological displacement, housing insecurity, and infrastructure decay are areas where fiscal policy could and should make a lasting positive difference. According to CBRE, office net absorption in the first quarter of 2021 was negative 34.8 million square feet, and vacancy rose even more steeply than in the worst year of the Great Recession.9 With more than 111 million square feet still in the construction pipeline, office owners are braced for more bad news later this year and into 2022.10 Retail real estate was hammered long before COVID-19 arrived, as the sector has been "overstored" throughout the 21st century and was threatened by e-commerce even prior to the population being required to shelter in place in 2020. [...]cap rates ranging, on average, from 5.0 percent (for apartments) to 6.6 percent (for retail) are keeping pricing rich compared with the risk inherent in that underwriting uncertainty.12 We are observing many investors increasing their focus on property management aimed at retaining tenants and defending cash flow, while selectively seeking "value-add" properties amenable to active asset management.

The Economy Beyond the Tipping Point: Crisis and Opportunity for Renewal

The fragility of the economy, even as headline statistics encouraged complacency, was evident in the impact of the partial government shutdown of late 2018-early 2019, when the loss of a couple of paychecks to federal employees and related workers drove hundreds of thousands to food banks and scrambling to friends and relatives to meet monthly bills, including rent and mortgage payments. A TWO-PART FRAMEWORK What then might be the relevant interactions between a disruptive public health crisis that is metastasizing into an economic downturn that, by some measures, falls between the Global Financial Crisis of a decade ago and the Great Depression of the 1930s as a challenge to society and to the economy? The impact of the economic lockdown on state and local tax revenues could shrink non-federal government employment levels, as occurred in the Global Financial Crisis, and shelve important infrastructure projects. A Brookings Institute report identifies 27.4 million workers in the most vulnerable jobs, plus another 9.8 million across the rest of the economy as at high risk in the near- and mid-term. Besides hotels and restaurants, retailers, casinos, building materials, and personal and child-care services are on Brookings' list.

Had Enough 'Disruption' Yet? Economic Reflections After the (First) Summer of COVID-19

The founder of modern economics, Alfred Marshall, used this Latin phrase as the epigraph of his 1890 Principles of Economics, a text which laid out fundamental economic concepts still considered relevant to understanding economic utility, investment returns, supply and demand, and competition in the marketplace.5 Considering the Disruption of the Coronavirus Pandemic One of Marshall's key insights was that economics was not merely a study of wealth, and the activities that go into the creation of wealth. [...]the temptation to find a quick fix, a kind of leap, is especially strong amongst policy makers right now, and so the systematic perspective of Marshall can be a healthy corrective to some of the 'magical thinking' being applied to the restoration of the U.S. economy. The critical take-away from these Bureau of Labor Statistics data is that the headline news about job losses as concentrated in a few industries such as hotels, restaurants, and retail stores, large employing low-wage workers, gives a very incomplete picture of the labor force impacts. [...]the U.S. Chamber of Commerce (a private organization) reports that 58 percent of small business owners find themselves at risk of closing permanently.