Emerging businesses with great jobs are needed to ping local economy

Job Growth, low mortgage rates, higher sales prices and TILA-RESPA Integrated Disclosure (TRID) were the headlines that Moderator Ken Harney opened with at the 19th Annual NVAR Economic Summit on Sept. 9. The event, which took place at the Fairview Park Marriott in Falls Church, packed the large ballroom with hundreds of Realtors®, dozens of industry affiliates, four sponsors and two breakfast buffets.

Reflecting on development since the 2014 summit, Harney touched on what has improved, such as sales prices in Fairfax, and some things that didn’t, especially federal spending. Following his quick refresher on TRID regulations that became effective just days later, Harney introduced the National Associate of Realtors® Chief Economist and Senior Vice President of Research Dr. Lawrence Yun. 

After reviewing factors contributing to the national and regional economy, Yun focused on employment. From his view, the employment rate is back to relative normal. However, Yun said “We are creating jobs but the wages are not really growing.” This condition, he explained, means that more people rent for longer since they may not accumulate the down payment nor can they qualify for a loan.

Yun noted that the job market is solid locally. “From 2000 to today, 600,000 jobs have been added to the region.

“Northern Virginia is showing, I would say, statistically slightly better than the nation in home sales, slightly under in terms of home price growth,” he said.  “On average Northern Virginia is following the national trend. In areas where they are losing jobs or are experiencing slow job growth, the housing market is much weaker, so it’s all about jobs,” Yun continued. 

“Home builders are not building; we hear the complaint about a lack of inventory," Yun said of the current housing supply. “There is trouble getting construction permits, and there is a major shortage of construction workers.”

HOUSING STOCK
A crucial variable Yun pointed out is the effect of the rental market on home buying.

“Rents are rising at a seven-year high,” he said. “Homeownership has fallen to a 50-year low; we do not want to become a renter’s nation.”

As rents continue to climb, more renters become intrigued by the prospect of buying, he explained. Rising rent prices, Yun noted, “can push qualified buyers to buy.”

While new buyers consider entering the market to escape renting, they are finding it difficult to locate or build an affordable home.

“Home builders are not building; we hear the complaint about a lack of inventory,” Yun said of the current housing supply. “There is trouble getting construction permits, and there is a major shortage of construction workers,” he explained.

Sharing survey results compiled by his NAR Research department, Yun noted that finding the right property was ranked highest among all generations for being the most difficult step.

JOB FORECAST
Looking ahead, Yun said to watch for Federal Reserve action regarding a possible interest rate hike and to observe new construction and inflation trends.

As the economy grows, Yun suggests the housing market in this region will continue to improve as well. As construction barriers are resolved for builders, new home sales nationwide are expected to exceed 900,000 units in 2016, according to the World Journal Report and the National Association of Home Builders.

George Mason University Center for Regional Analysis Director Dr. Terry Clower told the audience that the DC metro region is still technically growing, but this regional economy is too specialized. While the number of jobs is increasing, Clower said, the pace is slow and the supply of better quality jobs is lacking.

The number of professional and business services, education, leisure and hospitality jobs has risen locally, but the region has lost out on information technology and manufacturing jobs, he added.

“It takes about five of the leisure and hospitality jobs to make up the economic activity that’s represented by one of those manufacturing jobs,” Clower said. “It takes 12 leisure and hospitality jobs to represent the same contribution to gross regional product that one financial services job does. 

“If we look at January 2014 to 2015 in terms of overall job growth among the biggest markets in our country, we came in at the unenviable position of dead last. Detroit did better than us last year.”

Construction is the one job sector that still lags that is important to Realtors® and prospective homebuyers. Since 2010 this region added close to 26,000 construction jobs, but that is still short of the 49,000 lost from 2008-2010, Clower noted.

“Counties are hesitant to build with cash strapped school districts,” said Clower.

Although recent job growth figures show fewer high value positions, Clower suggests that the region has significant and favorable underlying fundamentals.

REGIONAL POTENTIAL
“Exports are a key to growing the economy,” Clower pointed out.

An export-heavy focus involves higher wage jobs, which increasing the value of the local economy. Exporting products out of the region and internationally also allows businesses to pass on the cost of local tax burdens to consumers. We can expect an export heavy approach from manufacturing and tech companies, he explained.
“We can start seeing real growth in our industrial sector if we can handle it correctly,” Clower said, regarding potential businesses looking to scale up. For example, if a successful startup moved to Prince William County or Loudoun County instead of Silicon Valley, then Northern Virginia benefits.

Promising start-ups relocating out of the region was one of three challenges identified by the Summit’s final speaker, Jonathan Aberman, chairman of TandemNSI. The other two factors: The importance of technology and focusing on converting business-to-government (B2G) dealings into business-to-business (B2B) opportunities.

Aberman explained how new technology could affect our lives. He described recent developments such as 3D printing, artificial intelligence and robots as tools that could change our day-to-day needs. Aberman cautioned the audience, “energy in this country is about to change dramatically.”

Our tax dollars have been paying for this new technology, he noted. The Department of Defense and other metro area government agencies are contracting companies and scientists from across the country. While some of this work happens locally, the region is losing more to Silicon Valley, he warned. 

Our two most significant economic development challenges are, changing the stream of money so it stays here and ensuring that there are more B2B contracts since there are fewer B2G prospects. 
Entrepreneurs makes up one fifth of our economy and these “gazelles,” as Aberman describes the start-ups, are integral to developing and growing our region. During the pre-recession “Internet boom” the D.C. region had an abundance of these fast growing, successful telecom “gazelles”. 

“We’re at the cusp of being a leader in a place where real estate prices and commercial real estate and residential real estate continue to drive our region – or not.”

“We’re at the cusp of being a leader in a place where real estate prices and commercial real estate and residential real estate continue to drive our region – or not,” Aberman concluded.

Being on top of technology is paramount to keeping our region’s successful entrepreneurs. Aberman explained how the Internet has established a winner-take-all economy. It has created an advantage for efficiency, he says. 

“What the Internet does, is it creates an enormous advantage for the most efficient [companies] and it creates a tremendous penalty for the less efficient,” Aberman said. “It’s a winner take all economy. That means you want to make sure that the ‘gazelles’ in that economy are here, because you want the winners,” he concluded.

While Yun and Clower emphasized the impact that the job market has on housing, Aberman was more focused on why the correlation exists and what jobs are important to keep around. Yun pointed out the job market is growing overall. However, as Clower illustrated, there are gaps in the quality of these new jobs and many industries related to housing are still suffering, particularly new construction.

All four speakers exercised some caution when proclaiming the state of housing and the economy in the near future, but the consensus was that the recent growth is promising. Aberman told the audience, “This region has the potential to be a dominating economy in the U.S.”

Clearly, Northern Virginia has had a strong, diversified economic base in recent decades. The speakers expressed their optimism about that continuing in the near future in spite of the softening of federal contracting. Speaker consensus was that the strength of the local technology sector and the quality-of-life appeal in Northern Virginia will help fuel a strong real estate market for the rear and far term.