Change is constant: The trick is to find the opportunities…

Vice President , The Regional Group of Companies Inc
  • Sep. 3, 2019

It made for a catchy headline during a slow summer news cycle a few weeks back, how “dark web detective, cannabis sommelier and therapist hairdresser” could be jobs of the (near) future.

The world is changing, but how will this continue to impact our demand for, and use of,real estate?

Bitcoin and blockchain is redefining how we transact (if you can believe all the hype). Economists warn of the millions of jobs being lost with the growth of automation thanks to AI and robotics. HR pundits talk about the rise of the gig economy.

The impact of all this is measured in that relatively abstract concept we know as money. Money is a fluid thing that’s always in flux in terms of its value, who is gaining it and who is losing it.

Real estate is directly impacted by this. Nothing I see in the present leads me to expect the future will be any different.

That CBC story I refer to above was drawn from a new report released by the Brookfield Institute titled, Signs of the Times: Expert insights about employment in 2030. It builds on a related report from April, Turn and Face the Strange: Changes impacting the future of employment in Canada.

That April report attempted to “illuminate” the near-term impact on skill demand of the “diverse and intersecting drivers of change in Canada’s labour market.”

The authors’ intent is to get jobseekers, policymakers, educators and employers alike thinking about what skills will be needed in the future.

While many people may face this storm of change with fear, it’s important to bear in mind that change is constant and always has been. The trend up until now has been for new skillsets and occupations to emerge at least as fast if not faster than the obsolescence of old ones.

The whirlwind started 500-plus years ago

My summer reading in economics has led me to conclude this whirlwind of change has been in force for the past 500 years.

Let’s look at Europe and its sphere of influence. After the fall of the Roman Empire and those centuries of stagnation aptly dubbed the Dark Ages, the economic ball really got rolling in the 1400s with the Italian banking houses of the early Renaissance.

The Dutch then developed the idea of a central bank in the 1600s. The idea made its way across the Channel and the Bank of England was established in the 1690s.

Scotsman Adam Smith, credited as the “Father of Economics,” then published in 1776 his seminal work,  An Inquiry into the Nature and Causes of the Wealth of Nations.

By reflecting upon the economics at the beginning of the Industrial Revolution, the book touches upon such broad topics as the division of labour, productivity and free markets.

About this same time, coincidentally, James Watt introduced his advances to steam engine technology, heralding the Industrial Revolution.

Then you have German-Jewish banker Nathan Rothschild, born a year later, who achieved “wealthiest man on earth” status from his roots as a textile merchant in England.

He gambled on arranging financing for British troops during the Napoleonic Wars and took advantage of early knowledge of the outcome of the Battle of Waterloo in 1815 to speculate on the stock exchange and make a killing.

And then the Crash

Starting with those Italian bankers, we see the push-pull of money and opportunity that ended feudalism and gave rise to capitalism, free markets and modern economic thought.

Real estate, of course, underpinned all of it. With it came and went different skillsets and occupations to support economic activity at local, regional and national scales.

Economists who followed Smith developed their own ideas.

Most struggled to come up with a truly all-encompassing concept that adequately explained how money worked – this before the stock market crash in 1929.

In fact, some prominent economists up until that fateful autumn still forecast continued growth and didn’t grasp just how volatile the situation had become.

Take one set of my grandparents. They bought a house in 1920, not knowing they were buying more or less at the peak of an over-inflated market, and paid $10,000.

That same house sold in 1950 also for $10,000. There were likely lots of days in between when they would have been lucky to find a buyer at any price.

In the 1930s, the supply of money shrank, real estate prices fell fast, my grandfather’s pension fund was embezzled and people really got hurt.

When I was a kid, I knew a retired farmer who told me that in the early 1930s he took a sheep to market in Ottawa and the best he could get was 25 cents for the whole animal.

During this time, economists began to rethink their study of this abstraction we know as money: how it can change in size and speed and the impact, often dramatic, this can have on the price of commodities like real estate.

Fast forward to after the Second World War. In Canada, real estate prices were recovering to their 1920 levels.

My parents bought a house for $6,000 in 1945 and their fourth and last one in 1954 for $23,000. The value has gone up a bit since then, along with the rest of the market.

It’s becoming the new normal in some Canadian cities for the average home to be priced at $750,000 or more.

Why?

Rising income levels and the availability of cheap credit.

A well-heeled middle (and upper-middle) class appears to be getting a better handle on what money is and how to lever it. Money is now big and fast and real estate prices have been bid up as a result.

Demand from a younger generation of buyer is fueling price gains and the older generation is taking advantage of this inflation to sell at a premium.

It’s the pace of change that’s different

Couple this with the steady growth in urbanism. In 1900, more than 90 per cent of Canadians lived in rural areas or small communities. Now, 80 per cent of the population is urbanized.

People have embraced new lifestyles in pursuit of money, with profound impacts on the form real estate must now take to serve their needs. As I always say, everything people do takes place in real estate.

As needs change, so does land use and demand.

It’s all just a continuation of a path that was set in the mid 1700s, as Klaus Schwab spells out in his book, The Fourth Industrial Revolution.

Now as it was then, the key drivers of future fortunes rests with understanding the movement of money and the form that change will take next. The only thing that’s different is the pace of change – it’s accelerated.

The Medicis of Florence some 500 years ago may not have been able to grasp the kinds of changes we face today, but they certainly had no trouble pairing their understanding of banking with the opportunities of the time to build fortunes.

They made change work for them.

Watt and his steam engine allowed new generations of enterprising individuals to follow the same path on an industrial scale, for good or ill.

What’s important to bear in mind is that real estate will always be needed, the question is just how. It’s going to be interesting to see what properties become more valuable and what we use them for.

But, however things continue to change and regardless of the shape of economic activity, it will need to take place under a roof.

 

To discuss this or any valuation topic in the context of your property, please contact me at jclark@regionalgroup.com. I am always interested in your feedback and suggestions for future articles.


John Clark is Vice President with The Regional Group of Companies Inc. He has more than 33 years of experience in the real estate appraisal field, is a fully accredited…

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John Clark is Vice President with The Regional Group of Companies Inc. He has more than 33 years of experience in the real estate appraisal field, is a fully accredited…

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