Adam Consultancy Services

Our Blog

Real Estate

Real Estate is not the Key Economic Driver

Most recent publication about US economic recovery suggest that the housing market, which plunged the economy into recession five years ago, is now a key economic driver at a time when other sectors are slowing. For example, according to Conor Dougherty, Nick Timiraos and Neil Shah (WSJ, 2012), homes is the fuel of the US economy, since housing market is buoying consumers' spirits and giving the economy a lift while other major economic pillars weaken.

On the other side of the Atlantic, European countries also stake, a great deal, on the exploitation of their real estate holdings and aim to kick-start the European economy by utilizing the private real estate industry as one of the basic economic drivers. Many governments already promote large-scale assets’ privatization plans while at the same time they apply favorable regulations for the building and buying of space, in order to improve public finances and ultimately achieve a boost on the anticipated recovery (CBRE, 2012).   

Yet, most recent governmental policies relating to the real estate sector fail to consider an axiom; that the real estate industry cannot be considered as the primary economic driver capable of returning the economy to equilibrium.

Undeniably, the real estate industry is a powerful source of job and wealth creation, productivity and thus prosperity. However, the building and buying of homes and commercial space is only possible if the economy is organically driven by a widespread production and exchange of goods and services, allowing workers and businesses to sustain their shelter over the long term and not just during the virtuous cycle of a recovery.

A sudden recovery which is based entirely on a real estate boom due to regulatory delusions, but not grounded on other economic pillars (such as: tourism, technology, energy, services, healthcare, food, maritime, mining, textiles, automotive, etc.) will probably be transient and is most likely to lead to a repeated recession.   

It's been historically common for a property turnabout to be early in any broader business advance. However, in order to understand what types of real estate are going to be needed in order to support growth, the patterns of growth should soon unfold and the economics forces driving that growth should be early identified.

Actually, the real estate industry should serve as the main vehicle for establishing economic growth by providing the proper housing to the various business sectors. An economic upturn emanating from a concurrent recovery of diverse market industries, backed by public sector leveraging, will provide the solid foundations for the longed-for economic recovery. Let us examine two representative examples that show the impact of major industries both on the real estate sector and the total economic recovery.

  • The travel & tourism industry has the capacity to drive economic recovery and, therefore, accordingly influence the real estate sector as well. As specified by the World Travel & Tourism Council the travel and tourism's total contribution to GDP in the Americas was $1.9 trillion in 2011, a figure that represents about 8.6 of total GDP and three times the size of its automotive manufacturing (WTTC, 2012). The same figure for Greece was about 16.5 of its GDP! Worldwide research shows that the industry still has a great potential; Medical or luxury tourism can increase the role of this industry.
  • On the other hand, the energy sector constitutes a relatively modest share of GDP in most countries. However, the energy sector’s impact on the economy is significant since energy is an input to nearly every good and service in the economy. The power plants and the broad supplier networks, which require an extensive use of real estate, have the ability to drive a country’s economic growth and make an important contribution to the recovery from the global downturn. Many resource-rich countries strive to maximize the economic benefits of their resource endowments by encouraging the growth of related industries (World Economic Forum, 2012). Greece for example, while in the midst of the crisis, decided to re-launch its own gas and oil exploration program and at the same time it initiated the very ambitious project ¨Helios¨ relating to mass energy production by renewable sources.

Michail Kokkonis, MSc Real Estate, BSc MechE - Real Property Asset Manager & Consultant

Adam Consultancy Services is a new business initiative based on the notion that outstanding solutions always arise as a joint effort amongst stakeholders and their associates.

Subscribe Our Newsletter

Be the first to receive interesting news and articles