Stocks of Real Estate Investment Trusts

“Smart Growth” is a code word for whatever the user of this term wants to achieve concerning metropolitan development Yet different users of the term have totally different goals, so “smart growth” can mean almost anything. In spite of its diverse and often conflicting meanings, all parties superficially endorse “smart growth” because it is clearly superior to the alternative: “dumb growth.”
Many people claim we are now in the “information age;” so old-fashioned activities like agriculture and manufacturing do not matter much anymore. Nonsense. The information age wouldn’t survive for a minute without an immense amount of manufactured equipment, and eating is still a nice idea. True, those sectors are not growing as rapidly as the information sector, but innovations in the older sectors still present great economic opportunities.
Stocks of Real Estate Investment Trusts did poorly when the high-tech sector was booming even though real estate markets themselves were strong. That happened because REIT stocks seemed to offer far lower potential returns than high-tech stocks. When stocks of much of the high-tech sector tanked at least temporarily, REIT shares did much better because real estate markets have remained strong. So REITs looked better relatively. That improved REIT performance will probably last as long as (1) real estate markets remain strong, which they will in 2001 though market prices and rents will soften somewhat, and (2) high-tech stocks do not stage another spectacular rally, which seems unlikely for at least a while.
Many suburbs use “fiscal zoning” to decide what types of housing they will allow within their boundaries. If a certain type of housing does not produce more in local taxes than it costs the city government in local spending – including schools – the community designs building codes and zoning rules that keep that type of housing out. Since low-cost housing and multi-family housing are such “fiscal losers,” this approach prohibits such units. But the affluent residents in that community need the workers who can only afford such housing to mow their lawns, run their cleaners and laundries, staff their hospitals, even run their police and fire departments and teach in their schools. Yet if every suburb adopts such “fiscal zoning,” there will be no place for those low-and-middle-wage workers to live – except doubled up in illegally overcrowded units. That is why every community should be legally required by its state legislature to permit a certain fraction of its housing to be low-cost and multi-family units. And every consultant who does a “fiscal impact” study of proposed new housing ought to point out to the city concerned that excluding all residential “fiscal losers” is an irresponsible and unfair policy.