One of the great advantages of investing in real estate over stocks and shares is the relatively glacial pace of change.
It may seem as if housing cycles go up and down quickly. And yet compared to the world of stocks and shares, things move relatively slowly. Millions are won or lost on the financial markets in a matter of hours. For real estate investors, the appreciation (or otherwise) of their assets can take years.
For this reason, it pays to try and look ahead. The housing market is such that if we can see what’s coming, we often have plenty of time to prepare. And yet predicting the future is notoriously difficult.
So we asked one real estate expert – Miguel Sánchez Navarro Madero – for his thoughts on just three major changes that he sees coming up. Here’s his take on what the real estate market might look like in 2050.
“There are a lot of unknowns,” says Miguel. “But there are a few things that I believe we can be sure of.”
For Miguel, these are that:
1. Technology will continue to transform the industry
2. There will be more people, and more of them will be older
3. Human connections will be more important than ever
The transformative impact of technology will continue
We’ve seen a remarkable growth in the impact of technology on everyone’s lives in the last decade or so. Miguel believes that this, along with rapid population growth will be the key driver for change in real estate over the next 30 years.
“It makes sense to frame any question about the future of the real estate market firstly in terms of technology,” says Miguel. “Technology has had such an impact already on the industry and I see no reason why this would change. If anything, the impact will accelerate.”
He outlines just a couple of the areas where we might see this happening.
“Investors are already betting on ‘proptech’ in a big way,” says Miguel. “Investment in technology-based property start ups in the our industry hit almost $20 billion in 2018.
“We’re now seeing businesses who build their business models on broker-less, highly streamlined peer-to-peer property transactions. Smart contracts will become the norm – where again the whole process of legally buying property is streamlined.
“And of course AI will have more and more of an impact, allowing investors to model everything from future tenancy rates to predicted water usage in their properties.
“By 2050, we’ll also see buildings with features like biometric monitoring that adjust the environment to meet the wellbeing needs of the people who live in them,” says Miguel. “Recent research from the experts at JLL shows that 83 per cent of people want to see this in the commercial buildings of the future.”
But there are other areas in which technology will have a dramatic impact on the future real estate market. These are the changes to the physical, built environment that we’ll see emerging in response to dramatic changes like the rise of self-driving cars.
How tech will change the shape of real estate
“Think of the impact that cars had on cities when they were first introduced,” says Miguel. “Cities were physically transformed, and whole new neighbourhoods – the suburbs and satellite towns – grew and became feasible places to live.
“Self driving cars will have an equally dramatic impact on the shape of our cities, one way or another. For example, at the moment, being close to public transport often boosts the value of real estate. If fewer and fewer people own cars (perhaps opting for car-sharing or public transport instead), being close to public transport hubs becomes increasingly attractive.
“However, the exact opposite could happen too. As travel becomes cheaper and more cost effective, it may be that it’s no longer so important to live close to public transportation. The current transport systems we have in our cities could become redundant, impacting property prices as a result. There are also likely to need fewer parking spaces too, as shared, autonomous cars become the norm.”
The impact of an increasingly large, older global population
The other big factor that will impact the future of real estate investment in the coming decades is the global population boom – particularly in urban areas. The experts at PwC estimate that by 2050, the urban population will increase by 75% to 6.3 billion.
“That fact alone will put an enormous pressure on the world’s real estate markets, particularly in developing countries,” says Miguel. “It represents a huge economic opportunity, certainly, as more people move to the cities to find work.
“But more people living in our cities impacts everything from transportation planning to education policies, unemployment rates to rental yields for landlords. All of these factors will in turn impact the value of real estate in our cities.
“In addition, the world’s population is also getting older. The old-age dependency ratio (OADR) measures the number of people aged
65 years or over in a population relative to the number of people aged 20-64 years.
“That figure is set to hit over 25 per cent in 2050, meaning more retirees, and potentially fewer people of working age. That means big implications for real estate investors who put their money into retirement properties – but equally for commercial investors looking for business tenants in their units.
Creating places where humans can interact and connect
But what about that final prediction – that Miguel believes human connections will be more important than ever in 2050? What does he mean by that?
“By 2050, we’ll need to build more, for more people,” he says. “But it’s also important that this future real estate environment addresses the fundamental human needs that those people will have.
“Just as they do now, people in 2050 will want to live in places where they can interact, face-to-ace with others. They will want to work in places that make them feel healthy and well.
“The research from JLL I mentioned earlier also confirms this desire among respondents. 78 per cent of the people they asked about residential properties said that they wanted to live in small, self-sufficient communities.
“They spoke about the need for a natural environment, and how important they think factors like urban farming will be in the future. Being close to where their food is produced is a key concern for many.”
An era of fundamental change for real estate
These are just a few of the major changes that Miguel sees coming over the next 30 years or so. But of course, there will be many more too – some of which are even harder to predict.
“Clearly, climate change has the potential to drastically reshape the world we all live in, and real estate is one of the areas that is most vulnerable to this,” says Miguel. “Take the US as an example. A recent study suggested that around 40 per cent of the population are likely to be affected by climate change in some way. One estimate puts the value of their property at around $210 billion and predicts losses due to climate change (for example through flooding) of $34 billion.
“That’s just one country, that is relatively well equipped to deal with these kinds of changes. So how climate change will impact the global real estate market should be a very pressing concern for any investor.”
To read more of Miguel’s thoughts on the real estate industry now and in the future, take a look at his website here.