The Future of New Jersey: An Economic Forecast

June 25th, 2021 by Kimberley Irby

The COVID-19 pandemic devastated New Jersey in terms of both human life and the economy, but as the state opens back up, there are reasons to be optimistic for New Jersey’s future. There are also demographic and real estate trends that we must proactively counter and remain mindful of as our economy bounces back. Jeffrey Otteau, Managing Partner and Chief Economist at Otteau Group, presented facts and figures to show where we’ve been, as well as projections to show where we’re headed, during The Future of New Jersey: An Economic Forecast keynote session at the 2021 New Jersey Planning and Redevelopment Conference.

Throughout his presentation, Otteau described how various real estate sectors have fared over the last year, and one of the most interesting trends appeared in housing. According to Otteau, “what happened in housing was completely irrational, meaning that we had an acceleration in home purchase demand during an economic contraction, [which] has never happened before in history.” Otteau noted that contributing factors include millennials reaching home-buying age, record low interest rates, and coronavirus or personal safety concerns. He also described how the dramatic shift to remote work for many people acted as an accelerant, evidenced by the fact that around 500,000 households left New York City, many seeking larger spaces and less density. However, this phenomenon is likely temporary, and it’s not clear how much of it will persist as the pandemic recedes. Additionally, with housing prices going up so quickly, Otteau predicts that there will be an inevitable correction down the road. Given that home prices have risen much faster than salaries, there must be an adjustment that follows to bring homes back to affordable levels, especially as interest rates increase, as has happened in the past (i.e., the six years of double-digit increases in housing prices from 2000 to 2005, which were followed by six years of price declines). He also noted that some of the migration out of New York City is going to reverse itself once the economy is normalized, pointing to the historical precedent for this phenomenon.

Otteau also highlighted some of New Jersey’s demographic challenges, including the trend that the state is still losing residents aged 35 to 54. He provided two possible reasons for this. First, this age group is seeking more affordable housing and can’t find it, due to high home prices. Additionally, according to Otteau, members of this age group can’t find the types of housing they want, which are smaller in scale than large, single-family suburban homes. He claims that this younger-age adult cohort will continue to leave New Jersey if the state doesn’t start producing more of the smaller-format housing units, like townhouses and small-lot single family homes, that they are seeking. Younger New Jerseyans, which comprise a crucial talent pool for employers, will be looking for housing that is both affordable and designed to their needs, according to Otteau. One of the main takeaways that Otteau imparted is that this issue is a “critical problem that we need to be talking about and figuring out ways to solve for New Jersey’s long-term economic success.” Otteau cited home rule and zoning as standing in the way of New Jersey producing the housing that it will need to attract and retain younger workers. He referenced the warehouse sprawl bill as an example of a small step in the direction of looking at things from a regional perspective and also argued that we need to rethink school funding.

The overarching message of Otteau’s presentation is that there is great cause for optimism for what happens next, economically. “Looking to the future, now that we have seen the spread of the virus slow and hospitalizations drop precipitously, we can look forward to more rapid economic recovery here in our state as the pandemic fades,” Otteau said. Unemployment claim filings have stabilized to pre-pandemic levels, and about half of the jobs that were lost have been recovered so far. Beyond the recovery that has been spurred by vaccinations, New Jersey has been the recipient and beneficiary of substantial amounts of federal stimulus dollars, which have been helpful in terms of the state’s budget and fiscal future. Additionally, spending from the federal government’s infrastructure bill, which Otteau is certain will pass, will not only provide necessary improvements to our failing infrastructure system, but will also create jobs and economic growth. Furthermore, Otteau thinks that the longer-term trend toward greater urbanization will resume post-COVID, with more growth in transit corridors and in centers.

New Jersey has certainly suffered since the pandemic began, but the good news is that we can look forward to a swift recovery. Moreover, our state has a strategic advantage, with many smaller centers and an extensive transit network. Thus, we are well-positioned to take advantage of the trends that Otteau presented. To do so, we have to ensure that we allow housing supply to keep up with demand in these places.