By Veronica Perry
On Tuesday, April 14, Richard Green, Director and Chair of the USC Lusk Center for Real Estate and Chair of the Department of Real Estate Development, discussed the economic impacts of COVID-19 for USC Price’s Price Talks: Public in a Pandemic series. During the 30-minute Zoom session, Green touched on a variety of economic issues that are unfolding as a consequence of the pandemic related to employment, duration of quarantine and the repercussions facing various sectors of the economy.
Green explained that the United States GDP is forecasted to lose anywhere between $1 trillion and $2 trillion in the next fiscal quarter due to a significant reduction in business activity. According to Green, the CARES Act – passed by Congress in an effort to offset economic impairment – could potentially restore approximately $1.2 trillion in economic activity and thus halve the economic damage from the pandemic. Still, in Green’s view, the lingering effects on GDP will be determined by the peak in unemployment, which he stated could be over 20%, as well as how much damage it will do to “the plumbing” of the economy, otherwise known as small businesses in good economic standing.
“This will likely have a lingering impact because history tells us that unemployment is traumatizing. It is the ultimate in making people feel insecure,” Green explained. He compared the pandemic to the Great Depression and described changes in spending patterns such that fear dominated consumption for a significant period of time. But he believes that the Paycheck Protection Program (PPP) included in the CARES Act may assist in assuaging fears of spending. The CARES Act has dedicated $350 billion to the PPP, providing forgivable loans to businesses who keep employees on payroll. However, as of April 16, 2020 both the Economic Injury Disaster Loan (EIDL) and PPP resources are capped. Just prior to the exhaustion of these resources, on April 10, 2020 the US Chamber of Commerce wrote a letter addressed to Speaker Nancy Pelosi and Leaders Mitch McConnell, Kevin McCarthy and Chuck Schumer which urged congress to “replenish EIDL and to bolster PPP, and to help small businesses survive.”
Green noted that keeping people employed and getting businesses through this critical period are vital. Nevertheless, the duration of quarantine plays a significant role in outcomes of these areas. “Whether or not we have to stay inside for two, four or six more months will matter a lot. So the question is, can we keep these businesses going through some liquidity measures for a while?” Green said.
During his talk, Green also explored five sectors of business and explained the economic effects on each.
Real estate: Green discussed that the current decline in rent collection is consistent with the unemployment rate, but explained that he believes it is temporary. “Things like rental assistance would be very helpful to both tenants and owners of apartments and I’m hoping in the next round of stimulus we see that,” he said.
Industrial: Green suggested the likelihood of seeing an increase in industrial demand when the crisis culminates due to increased probability that online shopping will intensify.
Office: He also explained that we may experience a shift in office life, specifically who will work in the office. For example, differences in at-home productivity depend on job type. In a post-pandemic world, we may see that the composition of who is at work in an office building changes.
Retail: Green divulged that he “wasn’t very positive about retail before [the pandemic], and so this could push even more shopping centers to close.” However, he mentioned grocery outlets as an exception.
Hotels: Finally he stated that the short-term future of hotels is troubling due to widespread shutdowns across the country. However, Green asserted that “at the end of the day, we were a little over-built on hotels; but when people begin to travel again they are going to want hotels, so it’s hard to see them disappearing. But it’s probably going to be a few years.”
Green concluded by fielding questions from participants, which included inquiries about policies that can alleviate short-term financial pressure on homeowners, policies for ensuring financing for homeowners, stock market performance, potential decline of housing prices and long-term changes to our social safety net. The full conversation is available to watch here. Be sure to register for future Price Talks and join in on discussions related to the critical policy issues facing the world.
Director and Chair of the USC Lusk Center for Real Estate
Chair, Wilbur H. Smith III Department of Real Estate Development