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Economist sees political reasons for local real estate holding pattern

Tuesday, August 19, 2008 by Austin Monitor

Both the Austin economy and real estate market will remain in a holding pattern until spring of 2009 because of several national and local economic factors. That was the message to members of the Real Estate Council of Austin on Monday from Mark Dotzour, chief economist of the Real Estate Center at Texas A&M University.


Chief among the economic factors, he said, was uncertainty over this fall’s presidential election. Many promises are made by candidates during the campaign season, Dotzour said, and it is not clear which policies the winning candidate will actually adopt once elected. Of particular concern to real estate investors, he said, was a possible change to the capital gains tax.


“These politicians just throw this stuff out like it doesn’t matter,” he said. “That’s why people have got to be a little cautious about buying any real estate right now or any stocks and bonds right now.”  Dotzour said the nation would need to wait until at least three months after the new president is sworn in to determine what changes, if any, he will try to make in the capital gains tax. 


“I’m talking about political uncertainty here. There’s some political uncertainty here in Austin, too,” he said, referring to the called the Austin Energy Efficiency Upgrades Task Force. Of special concern, Dotzour said, were proposed energy-efficiency measures for older multi-family properties that could possibly become mandatory after a two-year voluntary period.


“Those kinds of things make you a little uncomfortable about buying buildings in Austin right now…you don’t know what kind of buzz saw you’re walking into. You could be walking into a change in the capital gains tax, and you could be walking into some kind of energy requirement that takes a bunch of cash flow that you didn’t anticipate,” he said. “If you’re thinking about buying older apartments right now, you might want to be careful.”  


He said while he supports energy conservation, some of the potential measures the city may be considering could “throw a pall over every investor at this point,” saying that it adds another level of uncertainty to the market.


Earlier this summer, Austin Mayor Will Wynn sent out a letter challenging claims that the recommendations of the Energy Efficiency Upgrades Task Force would include mandatory steps.


Dotzour predicted that new multi-family units would come on-line in the Austin market in 2009, but demand would not necessarily keep up. Occupancy rates and rental rates could drop, he said, as renters look for ways to save money when faced with other increases in the cost of living.


“When your electric bill goes up and your gasoline bill goes up and your food bill goes up…when all of your costs go up, you have to move in with a roommate or you have to move back home with your parents,” he said. “So, this is unprecedented, where you have job growth of two percent higher from a year ago and population growth…and this tepid demand for apartments.”


Other economists have cited high energy costs, a weak job market, and a credit crisis as reasons for the current recession.

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