On Feb. 1, real estate advisor Gary London talked to Norm Miller, professor of real estate finance at the Burnham-Moores Center for Real Estate at the University of San Diego, about the U.S. economy and how that might affect the local market. The wide-ranging discussion started with driverless cars, but also included the current political climate. The conversation was part of regular discussion for the Daily Transcript on real estate that is moderated by London. See the edited video below:
Here’s an edited transcript:
Gary London: Dr. Miller, a lot of people know you for your work at USD and your books. I really got to know you as the guy who waited in line for three years to buy a Tesla. Let’s start there: How is the Tesla?
Norm Miller: It’s great. I don’t have the self-driving features, so I’m a little envious of the people who bought it in the last year, but, other than that, I have to fill my windshield wiper fluid once in a while, and that’s really it. I didn’t know car dealers made so much money out of maintenance but apparently Tesla screws up that model. The dealers also make a lot of money off of sales commissions to keep people incentivized and Tesla screws up that model. So it’s really disruptive in a lot of ways on the business process.
London: We have been talking about autonomous automobiles for some time, and it appears Tesla is the first manufacturer to come out with one that is truly autonomous. I can’t help but wonder what the land use and real estate implications are for that. If we don’t have to drive the car, we also don’t have to park it in a building. If we don’t have to park it in a building, then builders don’t have to build parking spaces for that building. To me that changes the entire economic feasibility structure for buildings.
Driverless cars’ real estate effect
Miller: The implications of driverless cars is pretty amazing. They can drop you off, pick you up. We can park in land that is less useable for other things, maybe near noisy factories and airports, maybe further away. It’s definitely going to change the land view elevation, and if we take a typical high-rise office building and, say, instead of having 10 floors of parking for a high-rise office building, we can cut it down to two, that gives you so much more productive space, adds to the value, and there are many, many other implications. I’m sure you’re thinking about the same thing; that and retail and hotels and on.
London: Well, it costs almost as much to build a structure for one car as it does for one unit, one apartment unit, one office space. So it’s going to have dramatic implications at some point. The other thing that is interesting is if we can be in a car commuting, but we don’t actually have to pay attention, and we can be working as if we were being chauffeur driven. It seems to me people don’t have to live within what is normal commuting distance. So the relationship between where we work and where we live has a potential change. If you work in downtown San Diego, you could live in Temecula. It wouldn’t really matter.
Miller: It is going to change the interior configuration of cars. They are going to be mobile work environments. My stepdaughter asked me the other day, “When will I be able to sleep in the Tesla?” Eventually, we will have the ability to work or sleep or watch movies. It will dramatically lower the time and cost of commuting, which means cities can spread out more.
Online shopping habits
London: I’ve been talking to retail people over the last few weeks. We all have a sense that 2015 was a milestone year. People purchased goods on the internet at a much higher percentage, maybe double or triple — still a minority relevant to going to a brick-and-mortar store — but it is really a wake-up call in America in terms of how retailing is changing.
Miller: I think the difference too is we changed what we buy online. Ten years ago I bought books, CDs, maybe electronics. Then I thought, ‘Why not buy my lightbulbs there instead of Home Depot, because I’ll get them in two days.
London: The difference was the app. You don’t have to go on in front of the computer to go to Amazon or any of the others. You can just say, ‘Gee, I need that.’ You whip out your phone and buy it.
Miller: It’s so much easier, and the speed of delivery was a big leap forward. Now Amazon is thinking about drones and helicopters. Maybe they will start using little SmartCars that are driverless to drop off stuff.
London: Let’s change the conversation briefly. I tell people that it feels like the United States economy right now is in sort of a prosperous global island in a sea of global economic depression or anxiety. Do you see it the same way?
Miller: The presidential political rhetoric will make it sound otherwise, but we’re doing great. Considering how terrible the world is doing, or many parts of it, and considering the drags we have on our economy, the fact that we only have about 5 percent unemployment is remarkable to me. And, as you know, we have something called structural unemployment, where there is a mismatch between the skills and the jobs. We’ve had that for a long time. That would suggest that we should have 6 or 7 percent unemployment, but somehow we’re down to 5, which means that firms are hiring and training people that really aren’t good fits. We can’t do a whole lot better than this unless we improve our education system.
Elections & economics
London: How does an election year typically play out economically?
Miller: I expect this year to be a bit of a challenge only because the global problems are weighing down on our otherwise good local indicators, and so I’m not sure exactly what the Fed is going to do. They might be slow to raise interest rates. If China was doing better and Europe was doing better, they would probably raise them sooner.
London: What about who we elect as president? Do you think that has an influence economically?
Miller: It does. If we go the Republican direction, you would think there would be more conservative fiscal policy; however, the Republican candidates always support strong military, and military intervention costs money. It’s not clear that with either party, Democrat or Republican, we are going to really reign in our deficit problem very much.
London: What about the California economy with China slowing down and Europe in trouble and Brazil in economic recession? How does that play out in California? For instance, in terms of foreign money come in to invest in real estate?
Miller: The Chinese in particular have pulled back a little bit. They are still coming here to store wealth, and they still have a lot of it. And we’re probably going to see the Chinese insurance companies and pension funds continue to invest in California, especially in major cities. But the individuals are now slowing down, which means these luxury homes aren’t quite as briskly selling to the foreigners as they were.
Editor’s note: On Feb. 22, Gary London will moderate a live roundtable discussion with a group of panelists expanding on these issues. The event is co-sponsored by the Daily Transcript, the San Diego County Bar and Urban Land Institute. For more information, click here.