How can we make real estate a national policy priority? How can we get policymakers to better understand and appreciate the relationship between a healthy real estate sector and the country's continued economic prosperity? More importantly, how can we, as an industry, get legislators to consider the impact of their legislative proposals on the real estate sector?
These are the $64,000 questions that have challenged, and confounded, the real estate industry for years. It was not surprising, then, when discussion at a meeting of the National Real Estate Organizations (NREO), a coalition of 12 leading real estate groups, turned once again to this topic.
As the apartment industry's leading representatives in Washington, D.C., the National Multi Housing Council, together with its legislative partner, the National Apartment Association, routinely spread the word about the importance of the real estate industry on Capitol Hill. We tell legislators that real estate accounts for 12% of the gross domestic product and some 8.9 million jobs. We point out that as an economic sector, real estate generates 25& of taxes collected by all levels of government and almost 70% of all tax revenues raised by local governments.
"Despite these efforts," notes Clarine Nardi Riddle, NMHC Senior Vice President for Government Affairs, "we find that few policymakers fully understand the contributions real estate makes to healthy, vibrant communities, and fewer still take the real estate industry into consideration as proposed legislation works its way through the process."
Urban Land Institute (ULI) Senior Fellow, Former Congressman and Indianapolis Mayor, William Hudnut captured the essence of this challenge when he said: "Public officials don't help the public make the proper connection between real estate and the services they receive. You can not have teachers teaching in schools, you can not have police officers chasing criminals or firefighters putting out fires if you don't have real estate paying taxes and spurring economic development."
So, how to make real estate a national policy priority? The consensus of representatives at the NREO meeting was that two immediate initiatives - a Real Estate Summit and a Congressional Real Estate Caucus - could lay the groundwork for a sustained, long-term educational effort. Led by Riddle, the National Multi Housing Council, 1997 chair for the NREO coalition, took on the challenge of coordinating the first-ever Capitol Hill Summit dedicated exclusively to the real estate industry.
Convened on May 12, the 1998 Real Estate Summit, "Real Estate: The Foundation for America's Future," brought together U.S. Senators, Representatives and their staffs, and real estate practitioners to discuss ways to promote and protect one of this nation's most important industries. Through a series of presentations and panel discussions we brought three key messages to Capitol Hill: (1) Real estate is a cornerstone of our economy; (2) Real estate practitioners are actively working to solve the nation's social and economic challenges; and (3) Real estate is a key component of our vision for the future.
As a cornerstone of our economy, real estate helps position the United States as the world's foremost economic power. Hudnut's presentation, based on the findings of a new ULI publication entitled, America's Real Estate: Natural Resource, Natural Legacy, presented compelling statistics supporting his claim that there is no more important contributor to the economic health and progress of our nation than real estate.
For instance, did you know that more than half of all corporate earnings are generated by real estate and real estate-related activities? Or that real estate assets constitute almost half of the nation's domestic investment? Or that the aggregate value of our nation's real estate stock is $20 trillion, three times the value of the annual Gross Domestic Product? Clearly, as real estate goes, so goes the economy.
It takes a developer NMHC has learned over the years that even among policymakers who appreciate real estate's economic contributions, many are unaware of the unique contributions real estate practitioners are making to address some of America's most intractable urban challenges.
After years of failed attempts, local governments are quickly discovering that the missing ingredient to most urban revitalization programs is not money, but talent and knowledge that can only be provided by skilled real estate professionals. These private entrepreneurs not only have expertise in construction, finance and marketing, but they are also equipped to bring all the necessary players - architects, bankers, contractors, property managers and community groups - together to produce results.
>From brownfield redevelopment to urban renewal, real estate professionals around the country are using their expertise to identify and implement community improvement initiatives.
Richard D. Baron, President of St. Louis-based McCormack Baron & Associates, told policymakers at the Summit that as America renews its emphasis on healthy communities, real estate is prepared to play an enhanced role in those communities.
Baron showed visual examples of remarkable inner city transformations his firm has been able to accomplish in St. Louis, Kansas City and Pittsburgh. The involvement of the private sector is key, notes Baron. "Political leaders change. If the private sector developer stays engaged, the lenders and equity investors will continue to participate."
Real estate's role in the future It is important for legislators to understand the changing landscape in which America's residential and commercial real estate is developed, owned, operated and financed. Three panels highlighted the top trends in securitization, taxation and deregulation and explained how those trends will affect the role of the real estate industry in the current, or in future, economic expansions.
The 1990s have seen a changing role for key real estate players. Declining real estate investments by traditional sources such as savings and loans and insurance companies have been replaced by the dramatic growth in real estate investment trusts and commercial backed mortgage securities. As Steven A. Wechsler, President and CEO of the National Association of Real Estate Investment Trusts, observed "this is the last corporate sector of our economy to go through this process of converting from a historically private ownership to public ownership." These changes have been accompanied by a consolidation of players and a restructuring of a previously fragmented industry, and the implications of this evolution are numerous.
Wechsler noted, the increased data availability associated with public companies yields better accounting in the marketplace and more professionalism. Additionally, the conversion to public ownership is turning the real estate industry into a more efficient user of U.S. capital and making the industry more efficient. This economic development not only benefits the real estate industry, but the U.S. economy as a whole.
Panelists pointed out that the changes within the real estate industry are taking place in the context of larger social and economic transformations. Gerry Lederer, Vice President with the Building Owners and Managers Association International, moderated a panel on trends in deregulation and explained that our economy's competitive revolution, which has already delivered a deregulated telecommunications industry, will soon create a deregulated electricity industry. This economic restructuring will have a profound impact on the way commercial and residential real estate is developed and operated. Jeffrey D. DeBoer, President and COO of the National Realty Committee and moderator of a panel on taxation, discussed the serious implications tax reform could have on the value of our nation's real estate assets and markets.
Finally, technological innovations are reshaping American lifestyles and dramatically altering the real estate environment. Michael Bloomberg, president of Bloomberg Financial Markets, LP, addressed what the "mind-boggling" explosion of communications capabilities will mean for financial services, governments and individual privacy. One immediate impact is the creation of a more highly competitive environment where the legal, geographic and economic boundaries of information exchange have been eliminated. From design to financing, real estate is responding to new economic realities and rapidly evolving lifestyles and preferences. Our industry is leading the way in creating functional environments for our mobile and more technologically advanced society.
Congressional Real Estate Caucus Our efforts to raise the visibility of real estate as a policy issue took a major leap forward with the formation of a new Congressional Real Estate Caucus. Announced at the Summit, the Caucus will be co-chaired by Reps. Richard Neal (D-MA) and Phil English (R-PA). The Caucus' primary goal will be to ensure federal policies facilitate real estate's continued contributions to the national, state and local economies. "Despite all the agreement as to what a valuable role real estate plays in our economy," noted Rep. English, "it is rarely referenced in the debates that occur here on Capitol Hill. That oversight Rich Neal and I plan to change."
As Congress becomes more in tune to the needs of the real estate industry, we need to reinforce our key messages each time we interact with policymakers. There are many things that can be done in terms of refining legislation and revising the tax code that will enhance the ability of real estate to continue to lead America's current economic growth. But, as Riddle points out, "Congress isn't likely to do any of it unless we as an industry continue to position our neighborhoods and cities for the 21st century."