President Donald J. Trump’s new economic policies signal further job growth and expansion for an already strong economy, but uncertainty remains high as his approach to trade, immigration, and industry deregulation unfolds over the next several months, according to ULI member and leading real estate economist Kenneth Rosen.

Rosen, chairman of the Fisher Center for Real Estate and Urban Economics at the University of California, Berkeley, spoke as part of a members-only webinar on what the Trump administration holds for the economy and real estate. He was joined by ULI Foundation governor Roy March, chief executive officer of Eastdil Secured, and discussion moderator Sheridan “Schecky” Schechner, managing director at Barclays Capital. The event was hosted by Anita Kramer, senior vice president of the ULI Center for Capital Markets and Real Estate.

“We go into this new regime with a very strong economy,” Rosen said. “We think this is a ‘sugar high’ created by the new fiscal stimulus.”

Kenneth Rosen

Rosen said that the major elements of Trump’s fiscal stimulus—corporate and personal income tax cuts; major spending increases on infrastructure and defense; a broad deregulation of industry; and the elimination of Obama-era policies such as the Affordable Care Act, the Dodd-Frank Wall Street Reform and Consumer Protection Act, and a suite of clean energy regulations—will give the economy further momentum, but could also mean larger budget deficits, particularly in the short term, before revenue can catch up to expenditures.

“It’s much easier to cut taxes than it is to control spending, much easier to talk about revenue enhancements that come from faster growth, but much harder to get that,” Rosen said.

Traditional energy sectors—coal, oil, and natural gas—are likely to become more robust as Obama’s clean energy regulations are rolled back, he predicted. “All those pipelines are going to happen,” Rosen said.

While Trump’s policies bode well for the economy generally, his administration’s positions on two major forces shaping the economy—global trade and immigration—are cause for anxiety, Rosen said, adding, “My biggest worry is that we’re going toward de-globalization.” To that point, and within a week of the January 17 webinar, Trump announced that the United States would pull out of the Trans-Pacific Partnership, a trade pact that would have lowered trade barriers between the United States and 11 Pacific Rim nations. Trump has repeatedly discussed imposing border taxes and tariffs on goods that foreign countries wish to export to the United States in an effort to boost U.S. manufacturing.

“In theory, it sounds good, but in fact, how you do it is very tricky and important,” Rosen said. “We worry that we’re going to roll back the global economic system that has done well for many people, [although, he noted] not for everyone.” It is unclear what the outcome of Trump’s protectionist policies might be, but higher prices for American consumers might be one, Rosen said.

Roy March

Rosen also warned of negative repercussions of Trump’s immigration plan, which takes an aggressive approach to deporting undocumented workers. “Will we have restrictive immigration policies that disrupt the labor force in certain industries?” Rosen asked. “Many industries are very dependent on noncitizens: construction, hotels, restaurants, and agriculture.”

On a positive note, Trump inherits a close-to-full-employment economy with a 4.7 percent unemployment rate, which will likely decrease further. Private sector employment has been steadily growing, with more than 15 million new jobs added after 2010. With Trump’s policies in place, Rosen predicts that unemployment could decline to the “low 4s [4 percent]” with tax cuts, deregulation, and the energy sector potentially spurring job creation. Few specifics have been disclosed on Trump’s $1 trillion infrastructure plan, which aims to rebuild roads, schools, bridges, and airports, but numerous industries—construction, real estate, and steel, among others—will likely be buoyed by it.

With greater productivity comes greater inflation and rising interest rates, which Rosen says have been “artificially low.” He predicts a rise in inflation from the current level of 2 percent to 3 or even 4 percent.

Rosen offered good news for real estate investors and developers: “extra innings” remain in the current real estate cycle. “Our best guess is that we’re still in good supply/demand balance,” he said. “Rents are still rising, vacancy rates are stable or falling, and we’re developing quite a bit of space.”

Both Rosen and March praised secondary markets for their appeal to consumers and investors. Rosen cited Charlotte, Raleigh/Durham, and Nashville as examples of cities that continue to post strong employment growth. “We really like secondary markets, which are normally not considered core places to invest, but places you think about all the time,” Rosen said. “There are a lot of great places where people love living and working, and they’re half as expensive or less than that compared to coastal markets.”

March noted that what he calls “sub-urban markets”—markets with urban core characteristics such as transit-oriented and mixed-use development located in suburban locations—will continue to be strong bets. He cited Bellevue, Washington, a Seattle suburb, as an example of a sub-urban market with unique qualities—a favorable state tax structure and investments in the innovation economy, such as the Global Innovation Exchange, a partnership between the University of Washington, Tsinghua University in Beijing, and the tech industry. March also cited millennials and their evolving preferences as a push factor toward sub-urban locations. As millennials age, form households, and require more space, communities outside the urban core but with urban amenities, strong schools, and transit options are likely to fare well.