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Pacific Union Chief Economist featured on DS News

Ask the Economist: Selma Hepp on Economic Growth

Selma Hepp is the Chief Economist and VP of Business Intelligence for Pacific Union International, Inc. She joined Pacific Union in 2016 to oversee the vital economic and technology intelligence for the company. Prior to joining Pacific Union, Hepp served as Chief Economist for Trulia, Senior Economist for the California Association of Realtors, and as an economist for the National Association of Realtors. She earned her Master of Arts in Economics from the State University of New York, Buffalo, and she holds a Ph.D. from the University of Maryland.

Why did you first become interested in the study of economics?

Economics is one of those disciplines that always made sense to me and I found it very intuitive. I studied urban economics, in particular, because I was always interested in how cities are organized and why they emerge. Why do people choose to live in high-density neighborhoods, or far from city centers in suburbs?

Growing up in a European city where walkability and high density were a norm, I was interested in why American and European cities are so different. However, over the last 20-something years that I have been here, I notice many urban trends emerging that replicate that walkability, town-center feeling that I was used to. I think people gravitate towards common spaces and like to interact with other people. That will drive urban trends and define how cities change and grow.


What are some of the biggest challenges facing the housing industry right now from an economic standpoint? How worried should we be about these challenges?

Access to housing is becoming increasingly more challenging for the greater share of the population. I worry about affordability a lot. From an economic standpoint, we are having increasingly divergent income growth. In addition, younger generations are not equally benefiting from generational transfer of wealth, thus they are starting off in life at very different opportunity levels. I’m concerned how increasing inequality will limit ability for some to access housing, homeownership, and asset growth; and to what degree they will be able to accumulate their own wealth.

We are in the middle of a technological revolution, and as with every revolution, there are winners are losers. Ideally, there should be more winners than losers, however it is hard to tell right now where we are on that spectrum. However, one-sided growth is challenging from an economic standpoint as we have seen in previous revolutions and consequent social unrests.

And lastly, we cannot emphasize enough the importance of new construction in viability of the housing industry. Some of the areas of the country that gained the most new jobs in the recent decade have not kept up with consequent demand for housing. Hence, the affordability concerns we keep talking about. To ensure economic growth persists in some of these areas, new construction is critically needed.

What area of the country do you think will see the largest growth in homeownership?

Affordability and access to finance and employment are critical in growing homeownership. While job growth has continued at a solid pace and is fueling demand for homeownership, affordability will be the factor determining where homeownership picks up the most. South seems to continue to be the place where opportunities for employment and homeownership are plentiful, however, I think spreading of the tech sector outside Silicon Valley will also help drive homeownership, particularly in those more affordable areas, such as Austin, Texas, for example.

Unfortunately, this current hurricane season will expose more vulnerable parts of the country and, possibly, make us reconsider where we want to encourage growth. Nevertheless, homeownership in the coming years will come mostly from millennials and their employment opportunities will drive that change. It’s interesting to watch where venture capital investment is spreading across the country because I think that will drive future employment growth as well.

What trends do you think the economy will see in the coming months?

Absent any geopolitical maneuvers that would distract the current economic path, economic fundamentals remain generally strong. While baby boomers retiring is a concern, we are fortunate with favorable demographic force coming from the number of millennials and the generation following them, generation Z.

Solid employment growth is a resultant force and possibly the only trend we can talk about with certainty right now. What remains very fluid are the potential policy changes and their impact on the economic outlook. But again, policy changes are and will remain fluid and it is very hard to talk about anything in the short future. I think it will be an interesting remainder of the year and the most important factor keeping the economy going will be optimistic consumer sentiment.

Thanks to solid employment trends, consumers have remained positive throughout this year and hopefully the sentiment will remain positive in light of recent calamities and many geopolitical uncertainties.

What other economic factors should we pay attention to?

One factor that we are lacking in the current employment cycle is wage growth and related inflation. There are several concerns around this. One, which economists have been talking about more, is the question if we are measuring the current economy properly. Most economic measures that we rely on have been developed long time ago when the economic output looked much different. Technology changed everything and I’m not sure if we even know yet how to measure all these changes.

Another concern around lack of wage growth is inability to attract skilled labor to jobs that are in desperate need of workers, such as the construction industry. One reason new housing construction has been missing in the current economic expansion is the lack of skilled labor. And lack of new construction further exacerbates affordability concerns that I mentioned earlier.

But lack of skilled labor is generally a problem, not only in construction, but also in tech industry, which is one sector severely, lacking qualified labor and one that will continue to grow. Put together, we need to find ways of quickly and efficiently training our workforce for jobs that we need filled. I think that would markedly help our economic growth.

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