Monday, March 20, 2017

The Future Will be Automated: How Will That Impact Housing?

During the year leading up to the last Presidential election, we heard a lot about bringing back jobs to the United States.  But what we didn’t hear much about was the increasingly important role that automation and artificial intelligence (AI) will have on the country’s job base, especially its potential impact on the housing market.

At first glance, the numbers are sobering:  According to former President Obama’s final Economic Report of the President to Congress dated February 2016, up to 83 percent of jobs which pay under $20 per hour would be the first job dominoes to eventually fall to automation.

While most of these types of jobs wouldn’t qualify workers to purchase a median-priced home in most areas, up to 31 percent of jobs paying $20 to $40 per hour will be next, and these are the types of jobs which allow many workers to grab that first rung of the home buying ladder.  However, for those workers earning more than $40 per hour – typically the main draw for move-up housing -- their focus on creativity, innovation and often complex communications will mean that just four percent of their jobs would be easily automated away.

In fact, many economists have argued that it is automation, not outsourcing to other countries, which has led to the loss of most manufacturing jobs over the last few decades, especially in the auto industry.

In the short run, the job market seems to be booming, with private employment growth rising in February 2017 at the fastest rate since April 2014, with nearly 300,000 new positions created.

Yet according to a Pew Research poll conducted in 2014, about half of the technology experts contacted expressed concern that emerging technology will displace more jobs that it will create as soon as 2025. Still, the other half were more optimistic, concluding that human ingenuity will continue innovating new jobs and entire industries, much as it has done since the dawn of the Industrial Revolution.

Even if these changes are rolled out over time, economic inequality may increase to the point that government needs to step in to prevent social unrest.

One potential solution could be a Universal Basic Income, once championed by those on both sides of the political spectrum, and almost signed into law during the time of former President Nixon.  The idea is that by providing citizens with enough income to survive irrespective of need, they can then focus on alternative pursuits, whether that’s in the form of volunteering in the communities, caring for family members or starting new businesses.

However, since that could also mean those receiving this free money simply sit home and do nothing, opponents suggest that a program such as the existing Earned Income Tax Credit is a better solution, since history has demonstrated that when people have a job – even one without a high wage – communities are generally safer and more stable.

To leverage existing infrastructure, another option might be to expand the Supplemental Security Income (SSI) program, which was launched in the 1970s to replace several other programs and currently covers over 5.5 million persons. Waste, fraud and abuse could also be curtailed with a single, simplified process.

Whatever it is called, the idea of a floor-level income is currently being tested in several countries including Finland, Brazil and The Netherlands as well as in the City of Oakland, California by Y Combinator, a start-up incubator which has a vested interest in preventing future social backlashes from the potentially job-taking technology companies it helps to found.

When similar trials were previously conducted in Canada, India and Namibia, social markers including health, education and nutrition improved while poverty levels, crime and emergency hospital visits declined.

So what impact could these technological changes and social programs have on housing? In the short- to medium-turn, focusing on those regions with the most technology-related jobs would be a great defensive move.

According to leasing giant CBRE Group’s annual Scoring Tech Talent report for 2016, these areas include not just the usual suspects such as California’s Bay Area, Seattle and Austin, but also Charlotte, Nashville, Baltimore and Oklahoma City.

In the longer term, another defensive move would be planning for the potential day when families, or groups of individuals, aggregate their basic incomes in order to qualify for both rental and for-sale housing.

In that case, because they will no longer be reliant on jobs in traditional city centers, their ability to live anywhere they choose could greatly expand the geographic reach of today’s homebuilding footprint.