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War and Real Estate: Analyzing 8 Critical Factors

Updated: Jun 28

The question of real estate's fate during a major conflict is more pertinent than many would like to admit. While I'm not inclined toward doomsaying, recent years have seen authoritarian regimes grow increasingly assertive. Examples include Russia's invasion of Ukraine and China's mounting threats regarding Taiwan.

 

My recent reading of Neil Howe's "The Fourth Turning Is Here" offered compelling insights. In essence, Howe posits a recurring four-generation cycle in human cultures, culminating in a significant crisis, often in the form of total war.

 

We find ourselves, according to Howe, in the midst of such a generational crisis, initiated by the Great Recession, evolving through rising populism and political polarization, and marked by the deterioration of institutions. Howe suggests we're only a few years away from the climax of this crisis phase—a large-scale war being the likely outcome.

 

Although our real estate investment discussions at SparkRental haven't touched upon war risk thus far, it's a topic we'd certainly address if conflict appeared imminent.

 

Predicting the likelihood of a major war, one that mobilizes the United States, over the next decade is subject to debate. Yet, the risk isn't negligible. As real estate investors, it's essential to consider potential outcomes in such a scenario.

 

Here are insights from history and eight factors to contemplate:

 

Increased Taxation, Reduced Deductions

War incurs substantial costs, necessitating significant government spending funded by higher taxes, particularly for middle- and upper-income earners. Tax loopholes and deductions, such as mortgage interest deductions and estate tax exemptions, may vanish.

 

Inflationary Pressures

Extensive government spending and likely printing of money can lead to inflation, eroding savings and purchasing power, as witnessed during previous wars.

 

Low Interest Rates

To manage debt costs, the government tends to maintain low-interest rates amidst high inflation, as observed in past wartime scenarios.

 

Decline in Housing Demand

Economic hardships, coupled with military enlistments, may lead to reduced demand for housing, as families consolidate residences.

 

Heightened Regulatory Risks

Government interventions, including eviction moratoriums and rent controls, may emerge, affecting real estate operations as seen during past crises.

 

Tightened Credit Markets

Financial institutions may impose stricter lending standards, limiting investor access to capital amidst wartime uncertainties.

 

Reduced Demand for Commercial Real Estate

Wartime disruptions may curtail consumer spending, impacting demand for office and retail spaces.

 

Surge in Industrial Real Estate Demand

The military-industrial complex's expansion during wartime historically drives demand for industrial properties.

 

In preparation for such scenarios, diversification into inflation-resistant assets like precious metals and cautious investments in industrial real estate could offer some protection.

 

In conclusion, while the financial implications of a major war are significant, the broader societal impacts are paramount. Adjusting investment strategies to navigate such uncertainties is imperative, ensuring resilience amidst changing circumstances.

 

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