Real Estate As Economic Powerhouse
Many discussions are had each year about the regional economy and what drives economic prosperity for northwestern Michigan. Industries such as agriculture, manufacturing, service and health care always top the list. Noticeably missing, is real estate. Yet every one of these key industries share a common and humble thread as they form the fabric of our region’s economic security blanket and that is the land.
Quite literally no farm, manufacturing plant, hospital or business operation may begin without first determining the location and land upon which it shall operate. At the beginning of everything is the real estate transaction.
We have been truly blessed in this region to be endowed with extraordinary geography, both land and water, that attracts homeowners, second and vacation homeowners, resorts and tourism-related properties, and a vibrant collection of towns, villages and cities.
So the fundamental question to be asked is this: Why when we determine the primary economic drivers for this region do we typically overlook the real estate industry and all of the ancillary industries that rely on a vibrant real estate market?
In 2014, our region experienced another strong real estate market. Approximately 725 licensed and certified members of the National Association of REALTORS served this market. While all real estate licensees are not REALTORS, those that are operate under an independent contractor status and as such should all be considered independent small business owners. So think of this as an industry that outnumbers any other industry in the region for the number of participants and that each one is a small business unto themselves operating and purchasing goods and services as small businesses do.
These “businesses” were responsible for closing deals on $657 million worth of transactions last year alone and some would say that while this is significant, this does not however eclipse the value of our historically stated largest economic providers, those being agricultural and manufacturing – and if you stopped there, perhaps this is true.
Yet the real estate industry goes well beyond the figures recorded at the closing table after a sale occurs. The closest estimate of our regional real estate market’s worth includes many facets that drive the economic benefit for our region into the billions.
The real estate transaction process involves no less than five other jobs – jobs typically related to surveying, title work, insurance, lending and appraisals, but there can be as many as ten or more jobs involved before the transaction is complete. Using a multiplier effect for job creation based on the Travere Area Association of REALTORS (TAAR) 725 REALTORS, this means 3,625 regional jobs are connected to the real estate industry. Use a factor of ten and this doubles.
So is it safe to say that real estate, as an industry, is the largest single job creator in the region? In an abstract way, the answer is yes.
All of these jobs represent economic gain, but there is so much more wealth generated as real estate is sold, developed into residential or rental housing and commercial space for business, nonprofit sector operations and public institutions. Does anyone think to count the development of a new governmental building, shopping center, mixed use building or health care facility as an economic result of a vibrant real estate industry?
Layered on top of this is the fact that real estate is one of the only recurring revenue generators in a world of single use, real-time consumption. Unlike any other good, real estate can be sold, transferred, rented, remediated, reconfigured or re-tasked and sold again and again, and again. In fact, new marketable real estate can be created where it did not exist before.
Each time real estate is transferred the economics repeat themselves. Each time a property is sold, improvements are generally made which in turn generates new revenue usually at the local level. In fact, real estate as a commodity is always local. You cannot ship Leelanau County offshore and halfway around the globe.
Finally, the one thing that most regional economic development types fail to mention is another recurring revenue stream that is manifest in taxes. Ag products, manufactured goods and health care services all have tax generators attached to them but are typically a one-time assessment at the point of sale or upon delivery of a service.
Real estate and real estate improvements, however, generate a recurring tax revenue stream over time with no sunset on this activity. Real estate taxes are the lifeblood of the local and regional community and any community with a less than vibrant real state market soon realizes a future of blight and decline.
It should be clear that the land and all it provides should be viewed as the most precious of resources, not to be squandered but to be held in trust and in good stead for future generations. Until we honestly calculate the true economic potential of our real estate market, it will be hard for citizens to see how important and valuable this industry and those professionals employed by it are to our regional economic health and vitality.
Kim Pontius is the Executive Vice President of the Traverse Area Association of REALTORS.