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Health-care costs are economy’s next big obstacle

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By Tom Hoban
Realty Markets
Published: Tuesday, April 30, 2013, 10:30 a.m.
  • Tom Hoban

    Tom Hoban

Every time the U.S. economy seems poised to recover, it gets hit with obstacles that prevent it from gaining any steam. March’s disappointing employment numbers bear that out. In what remains the longest recession-to-recovery period in post-World War II history, the chance for combining two quarters of growth together and marking sustained recovery flew out the window on March’s anemic report.
Economies are big and complex. Ultimately they serve people, though, and on that account this economy is breaking misery records for ordinary Americans and, in particular, able-bodied men. USA Today reported in April that only 45.4 percent of Americans had jobs in 2010, the lowest rate since 1983 and down from a peak of 49.3 percent in 2000. Last year, just 66.8 percent of men had jobs, one of the lowest figures ever. Some of this dip is due to an aging population. Most of it, though, is just due to an economy that can’t get healthy enough to create and sustain net new jobs even as the stock market hits new highs and banks begin to loosen up credit. It’s an economy that sounds like a dance routine: Two steps forward, one step back.
The next issue facing America’s job creators is the reality that health-care premiums are expected to jump next year by as much as 14 percent to 28 percent. The Affordable Health Care Act-mandated inclusion of people with pre-existing conditions kicks in next year and all of this accelerated rearranging of markets is loading on more costs and creating less competition, leading to the increases. By midyear insurance carriers will be meeting with their clients and delivering the bad news. In a weak economy, though, CEOs’ and business owners’ options are limited if they want to push those costs onto their customers. So resources that might have gone into growth and expansion now must be redirected to pay for the increased costs to carry their current employees. Another step back.
Real estate investors see all of this and continue to make bets into categories that presume this chronically sluggish recovery will continue. There are some areas of growth and prosperity, to be sure. But broadly speaking, apartment investment, discount retail and modestly priced single-family homes are doing well while categories that mark a growth economy see spotty success or keep waiting. Look to strong buyer demand in the apartment investment market and the expansion of discount retail behemoth Seattle Premium Outlets at Quilceda Village in Tulalip as local evidence. Office properties, by contrast, struggle with vacancy rates in the teens and next to no new construction or transaction volume in that category.
Two steps forward, one step back. It’s a cute dance step, but not such a cute kind of economy.
Tom Hoban is CEO of The Coast Group of Companies. Contact him at 425-339-3638 or tomhoban@coastmgt.com.

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