Prepare to be automated out of a job

robotIsn’t there a civic responsibility to plan for massive dislocation?

What should we do if we knew that, in the near future, a large sector of our country’s workers, currently employed with good-paying jobs, would be put out of work by new technologies? Would we ban the new technology to save those jobs? Or, do the scientific breakthroughs and related increases in growth and productivity outweigh the job-loss negatives?

These questions are not theoretical. Thomas Friedman explores these issues and others in his 2016 book, Thank You for Being Late: An Optimist’s Guide to Thriving in the Age of Accelerations. And a December 2015 study by the McKinsey Global Institute found that the US economy is only reaching 18 percent of its “digital potential.”

The McKinsey report projects that “about half the activities people are paid almost $15 trillion in wages to do in the global economy have the potential to be automated by adapting currently demonstrated technology. While less than 5 percent of all occupations can be currently automated, about 60 percent have at least 30 percent of constituent activities that could be automated. ”

Going forward, McKinsey projects, more occupations will change than will be eliminated through automation. Even a 4-year-old study done at the University of Oxford’s Martin School “estimates that 47 percent of jobs in the US are ‘at risk’ of being automated in the next 20 years.”

As the studies illustrate, it is very clear that technological advances are now coming faster and faster and starting to supplant even white collar skills.

Take, for example, the potential impact of autonomous vehicles. In the US, there are 3.5 million professional truck drivers, in addition to all of the drivers for mass transit, local deliveries, taxis, etc. One out of every 15 workers in the country is employed or associated with the transportation industry. Clearly, the impact of this new technology could be devastating to a large part of the nation’s workforce and their families.

If these disruptive technologies keep probing for efficiencies in our economic system and accelerate the obsolescence of certain classes of workers, isn’t there a civic responsibility to prepare for that inevitability? Living in a world reminiscent of Ayn Rand’s philosophy of positivism, where it is the survival of the fittest and “tough luck” to anyone else, is not going to sit well with the millions of the soon-to-be-unemployed Americans.

“When the rate of change eventually exceeds the ability to adapt, you get dislocation – when the whole environment is being altered so quickly that everyone starts to feel they can’t keep up,” Friedman writes in his book. “There is a mismatch between the change in the pace of change and our ability to develop the learning system, training systems, management systems, social safety nets, and government regulations that would enable citizens to get the most out of these accelerations and cushion their worst impacts. This mismatch is at the center of much of the turmoil roiling politics and society today.”

Bill Galston from The Brookings Institution suggests that many of the displaced workers have not been able to find new jobs that pay as much as the previous ones, with wages dropping an average of 40 percent when they do find a new job.

Eric Teller, CEO of Google X Research stated, “We certainly don’t want to slow down technological progress or abandon regulation. The only adequate response is that we try to increase our society’s ability to adapt.” For workers going forward, the only way to retain a lifelong working capacity is to engage in lifelong learning.

Governments (federal and state) are going to have to do better in two areas. First, they will have to provide a much improved “safety net” for the unemployed.  There will be more of the unemployed and these workers will be out of work for a much longer period of time. It will certainly take longer to find a comparable job that meets the worker’s skills (with fewer of these jobs available). And it will take longer for the worker to get additional training to qualify for those jobs that are available.

I suggest that we need a new system of wage insurance to minimize the negative effects of extended unemployment. The system would provide workers going through a training program with supplemental wages over what they would be currently receiving to give them time to be retrained for a higher-paying job.

Secondly, the US will need to adapt its institutions and training pathways to help workers acquire new skills.  The nation’s educational system and job training programs have not been sufficiently agile to respond to the needs of those businesses that are expanding and hiring. Even a college degree is not sufficient to guarantee a new job in the new economy. New online training modules that can be adapted and adjusted in short order will be needed to fine tune a prospect’s skill set to match a company’s requirements.

According to Friedman, the new workplace employers will value workers who can demonstrate the needed abilities for the job. These employers will need to provide multiple avenues for lifelong learning that are priced right, available on demand, and seamlessly responsive to the changing needs of the workplace. They also need to be fueled by a regulatory and tax policy to assure their widespread adoption.

What is very clear is that the status quo is not an option. Government will soon have to acknowledge that one of the greatest threats to our society will be the wasting away of our human resources. If there is no hope for the future (a job, a family, a home) for everyone in America, then the golden age of America, as a land of opportunity for all, will be a thing of the past.

NAIOP Mourns the Loss of Howard Elkus

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The  real estate industry is mourning the loss of an extraordinary professional, Howard Elkus, who passed away April 1st in Palm Beach, Florida. Howard co-founded the firm Elkus Manfredi Architects in 1988 in Boston, specializing in workplace design, large-scale developments, and urban planning. Under his and David Manfredi’s leadership, the firm has worked on signature projects throughout the United States and around the world.

Probably, no other firm has had such an impact on the cityscape of Boston over the last 10 boom years, while also spearheading major global commissions.

On its website on April 3, the firm released a statement:

“It is with great sadness that we share news of the unexpected passing of Howard Elkus. We grieve the loss of Howard as a co-founder of our firm, as a visionary architect, as a mentor, and as a friend. We extend our condolences to his wife, children, and immediate family. Information regarding conveying condolences and participating in remembrances is forthcoming. Our sincere appreciation for your concern and expressions of sadness.”

Howard was warm, creative, caring, and loved what he did. All of us who had the privilege of working with him will feel his loss on a daily basis, but we will always be reminded of his influence as we walk the city he loved.

A Housing Plan That Works

The business community is generally a bit skeptical when it comes to grand plans to cure critical deficiencies in the marketplace. One of the most pressing problems for Boston, and many other major cities around the country, is the lack of affordable housing and the inflationary pressures on existing housing stock. In 2014, Mayor Marty Walsh commissioned a new housing plan to confront the city’s problem of a population growth outpacing its production of housing.

The plan that resulted set a target of 53,000 new housing units to help rebalance the market and decrease the pressure on rents and housing prices in the city’s older (and more affordable) housing stock.

Through a cross department plan allowing for streamlined and expedited permitting, expanding the offerings of city-owned real estate, promoting innovation in housing production, and adding significant resources to housing production, the city has worked collaboratively with the development community to achieve real, measurable success.

Through December 2016, nearly 20,000 units were either completed or in construction. Over 21,000 units are currently in the permitting process. Housing unit completions have finally outpaced the city’s population growth.

Has the housing plan worked? For the first time in many years, rents in older units decreased or stabilized in the neighborhoods with the most new development in the past 5 years. The sharpest decreases were with studios and one bedrooms, with two bedroom units seeing modest decreases and three bedrooms rents stabilizing.

It is a serious challenge to develop a program to create new affordable, work-force housing without deep subsidies. However, we can now see that producing new market rate units can actually dampen the inflationary trends for the existing older housing stock. As long as the city can continue to work closely with the development community to keep the housing pipeline flowing, we may be able to keep Boston accessible to everyone.

Federal Court Rejects Lawsuit to Force Stormwater Permits in the Charles River Watershed

The following is a guest post by Hamilton Hackney of Greenberg Traurig regarding the recent decision in CLF v. EPA. NAIOP is extremely pleased with the decision in this case, which we had been following closely. NAIOP will continue to monitor stormwater issues at the state and federal levels on behalf of the commercial real estate industry.

Last week, the federal district court dismissed a lawsuit that sought to force USEPA to create a permitting program for stormwater discharges in the Charles River watershed.  Filed by the Conservation Law Foundation and the Charles River Watershed Association, the suit claimed that USEPA had a mandatory duty to require commercial and institutional properties that discharged stormwater to obtain permits to do so.  If successful, this suit would have forced commercial and institutional property owners to obtain permits, develop stormwater control plans and possibly design and install additional stormwater controls on their properties.

The suit invoked USEPA’s so-called Residual Designation Authority in the Clean Water Act. Although this authority has been exercised very infrequently to date, environmental groups are increasingly citing this statutory authorization as a basis for demanding that USEPA expand regulation of stormwater beyond industrial sources, construction sites and municipal stormwater systems.  In this particular case, the environmental groups argued that USEPA’s approval of “pollution budgets” (Total Daily Maximum Loads or TMDLs) for the Charles River obligated USEPA to regulate previously unregulated stormwater discharges to ensure that the TMDLs were achieved.  Given the hundreds of existing or proposed TMDLs in Massachusetts alone, that position could have far-reaching consequences for commercial and institutional real estate in the many watersheds with TMDLs.

The federal district court’s dismissal of this lawsuit follows another federal court decision last December in a similar case in Rhode Island.  Together, these decisions indicate that courts remain reluctant to intrude on USEPA’s discretion to choose when and how it may exercise its Residual Designation Authority.  While that is an encouraging outcome, these decisions are likely to be appealed, so there may be more developments on this issue.

MBTA On Track to a First Class System

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The MBTA has come a long way from the winter of 2015! With the formation of the Fiscal and Management Control Board and the waiver of the Pacheco law (regarding privatization), the T has reduced its operating expenses substantially, allowing more money to go to critical capital improvements. The growth in operating expenses averaged 5% annually over the last 15 years (against a 2% annual increase in revenue during the same period), but, for the first time, showed negative expense growth in 2016, with zero growth projected for 2017!

The reforms are working and consumer ratings are up. Here are some of the changes over the past 18 months that have been implemented to put the MBTA on a fiscally sustainable path:

  • Introduced monthly financial targets and manager accountability
  • Moved MBTA onto statewide contracts and payroll system
  • Streamlined corporate HQ/admin positions with 30% reduction
  • Strengthened and enforced overtime and attendance policies
  • Modernized cash-handling & warehouse through contracting
  • Restructured Carmen’s Union contract work-rules and wage rates
  • Launched Uber/Lyft and Taxi paratransit pilots
  • Restructured and refinanced debt portfolio; locked electricity rates
  • Rebid parking/advertising and raised system-wide fares
  • $100M winter resiliency investments / $140M in capital lock-box

In addition, the MBTA is in the process of privatizing the “cash room” operation and the manual route scheduling system. Both of these are projected to save the T over $12.2 million annually.

Another example of reforms is the pilot project for “The Ride”, providing access to the disabled community. An average ride has cost the T $46; however, the pilot using Lyft/Uber brought the cost down to $8.98. Along with that, consumer satisfaction shot to 79%. The transit industry standard is 12% and the MBTA, as a whole, has been a -1%.

The next proposal in front of the FMCB will be the privatization of Bus Maintenance.  A privatized machinists staffing is projected to be based on 200K miles per machinist versus 100k miles for the current MBTA staffing (requiring half of the current maintenance staff).

NAIOP has been a strong supporter of MBTA reforms and has been a part of a broad business and municipal “Fix Our T” coalition. We encourage the administration and the control board to continue bringing efficiency and cost savings to the T, while investing in its capital plan, providing the riders and the tax payers with a first class transit system.

With the Boston CPA Approved, How Should the Program be Administered?

Boston residents voted to adopt the Community Preservation Act by an overwhelming majority in November. The CPA is designed to create affordable housing, and preserve open space and historic sites through the creation of a local Community Preservation Fund. A one percent real estate tax surcharge on commercial and residential properties will go into this fund and will be administered by a nine-member Community Preservation Committee appointed by the city. Of the money generated by the CPA, at least 10 percent must be allocated to housing, 10 percent to open spaces, and 10 percent to historic preservation. The remaining 70 percent can be allocated to any one of those three uses at a different rate.

The City Council is responsible for creating the ordinance that will establish the Community Preservation Committee (CPC). The ordinance would establish the CPC’s composition, length of member terms, the method of selecting its members, and outline the responsibilities of the CPC.

NAIOP suggests that the CPC could be tasked with establishing the annual percentage allocations among the three categories of investments. Those budgets could then be provided to the City agencies best positioned, staffed, and experienced to review the proposals submitted through a “Request For Proposals” (RFP) process. The agencies’ recommendations for grants could then be reviewed by the CPC prior to submission to the Mayor and the City Council for final approval. This system would utilize the established expertise within the City agencies, rather than creating a parallel “review process” that might be limited by staffing and funding.

With respect to housing, it would be unusual for a CPC grant to be sufficient to fund new housing, rather than being a gap participant in the more complex financing structure. In that case, the Department of Neighborhood Development would be better suited to determine where these funds could best leverage the most housing (a similar arrangement exists under Somerville’s CPA). Again, their recommendations would still need to be approved by the City Council and the Mayor.

As with any new program, the devil is in the details.  For this to succeed, it is essential for the City to develop a rational, transparent, and cost effective process. Only then will the CPA be of the greatest good to Boston.

Immigration is a major driver of our economy

immigrationOn Friday, President Trump signed an executive order on immigration and refugees. It establishes federal travel restrictions stopping the issuance of visas to Syrian nationals, suspends all immigration from seven Muslim-majority Middle Eastern countries for 90 days, and extending the ban to citizens of those countries who hold U.S. visas or green cards.

There has been limited impact of this Executive Order on the real estate industry in Massachusetts. That said, besides the obvious humanitarian crisis that this only exacerbates, our region is dependent on, and benefits greatly from, the diverse immigration into our schools and industries. Our domestic population has never been able to fully meet the demands of our growing businesses, with almost every economic boom fueled by immigration.

Historically, refugees have contributed greatly to our Commonwealth. They are an integral part of our engine of innovation, working for our local companies and, in many cases, starting their own businesses, hiring many of our young, skilled resident talent.

We encourage the Trump administration to reconsider this abrupt change in policy.