Miami will continue to experience construction slump, troubled real estate market, economist says
By Zachary S. Fagenson
Scaffolding and cranes won't lift Miami out of the global recession.
Despite reaping the benefits of being an international tourist attraction an attractive location for foreign investment, former Reagan administration economic adviser Lincoln Anderson said Miami's saturated real-estate market will only weigh down on prices.
Since serving under President Reagan, Mr. Anderson has advised Bear Stearns & Co. and Fidelity Investments of Boston. Currently, he is chief investment officer and chief economist for LPL Financial, a private firm comprised of independent financial advisers.
Among myriad issues that have led to the international financial meltdown, he said, Miami will continue to see a troubled real estate market.
"Miami will experience more of a construction slump than you've already seen," Mr. Anderson said after meeting Monday in Miami with BankUnited Financial Services executives.
"New construction is really not needed."
While a declining real estate market has become commonplace across the country and is now widely considered the root of the recession, he said Miami could also see slowdowns in its hospitality industry as well as foreign trade and investment.
As unemployment and stagnating wages reduce expendable income of the average American, Mr. Anderson said the hospitality industry will have to take steps to make the city an attractive, affordable destination.
"Room rates and other prices will come down," he said. "Profit margins on that business, as well as volumes, will be much tighter."
The issue of Latin American trade seemed to be a double-edged sword to the economist. Growing economies such as that of Colombia will lead to an increased demand for US exports, he said. To capitalize on that demand, he said, requires a creative way to tap into those emerging markets and a method to keep American exports ahead of the game.
"I'm a big believer in free trade," he said. "I think further removals of tariffs barriers between us and Latin American countries would be a good thing and create jobs at home."
Although more free trade agreements would open up Latin American markets to US goods and services, the nature of those products continues to change as more and more jobs from manufacturing to back-office services are outsourced around the world.
"We'll have to innovate and figure out new areas where we have a competitive advantage," Mr. Anderson said. "We've exported low-tech overseas and we're trying to produce more high-tech manufactured goods."
In the case of the agriculture industry, he said, greater efficiency and high-tech production have actually led to reduction in jobs and a surge in productivity, the catch-22 of modernization.
As for foreign investment, he speculated that "it will continue but there will be dislocations." He said the volume of investment would largely depend upon the strength of the dollar.
Meanwhile, Mr. Anderson's overarching impression of the economy is that we're not out of the hole yet but will come out strong at some point.
"I think we're getting toward the end of [government-led] financial stabilizations in the US," he said.
"We're in a global recession, but in the longer term sense it will create enormous wealth around the world."