If the Tea Party cement-heads succeed in pushing the country over the fiscal cliff, Massachusetts may hit bottom with one of the loudest thuds of all.
The fate of 2013 for the Massachusetts economy will be hammered out, one way or another, in the days and weeks ahead down in Washington.
The Bay State, and especially the Boston area, New England’s economic engine, have much more to lose if Congress and President Barack Obama can’t cut a deal, averting a draconian series of tax hikes and spending cuts.
Defense and health care, high-tech and biotech all power our state’s economy. And all our sectors where government funding for research and, in the case of hospitals, even basic care, looms large.
If the federal spigot goes dry suddenly, then 2013 could wind up being a mess for the Massachusetts economy.
And in that case, all bets off are for the slow but steady recovery we are seeing in the real estate market, both residential and commercial.
What’s At Stake For Real Estate
If Congress and Obama can find a way forward around the budget deficit jihadists, then 2013 could very well be a good year for Massachusetts, maybe even a relatively prosperous one.
But, of course, whether the main players down in Washington have both the will and political finesse to pull off a deal is the trillion dollar question.
For the Bay State, tens of thousands of jobs in high-paying, cutting-edge fields hang in the balance, according to various industry and academic reports.
And that, in turn, has the potential for a huge amount of collateral damage in real estate.
Home sales, which surged at a 20 percent-plus clip this past year, could easily stall, taking whatever price gains we’ve seen over the past year with them.
The same is true for home prices, which are starting to move up again and which held up during the downturn much better than many other parts of the country, especially the Sun Belt.
The fact is that the overall health of our state’s real estate market is closely intertwined with the fortunes of our leading industries, in some ways much more so than other states.
In fact, some upscale Boston suburbs are just a few percentage points off their bubble years’ highs or have surpassed them, even as Miami, Phoenix and San Diego finally begin to dig out of their deep price holes.
Powered by innovation sector industries, the Massachusetts economy kept growing through the down years and doing what it always does, importing bright and highly paid talent from across the country.
These are the young professionals who are paying to replace aging Capes in Wellesley with modern colonials and bidding up condos in the more fashionable sections of Cambridge and Somerville.
Meanwhile, these very same New Economy industries are fueling the comeback in commercial real estate.
Over the past few years, as the rest of the country was struggling to get back onto its feet, once dull Kendall Square became a hotbed of new lab construction while fast-growing life sciences and tech firms gobbled up space on 128 and the Boston waterfront alike.
Remember that old Clinton-years campaign slogan, “It’s the economy stupid.” Well, nothing could be truer when it comes to the Massachusetts real estate market.
Big Cuts Coming
But the economic prosperity, upon which our sky-high real estate values depend, faces a serious threat from the looming fiscal cliff.
You can pick your poison when it comes to figuring out which sets of federal cuts will hit our state the hardest.
Just take defense spending.
Appearances can be deceiving when it comes to the impact defense spending has on Massachusetts. After all, we don’t have the big military base footprint many Sunbelts states have.
Yet the defense sector plays a major role in fueling our innovation economy, the powerhouse lineup of high-tech and defense related firms that line 128 and 495.
The defense industry accounts for roughly $25 billion in spending, both direct and indirect, while employing 130,000 in the state, the UMass Boston Donahue Institute reports.
Hanscom Air Force Base, already battling for its life amid a new round of base closings, currently pumps $1.2 billion into the local economy, mainly through its research operations, according to a recent study by the Massachusetts Department of Transportation’s Aeronautics Division.
Not Scared Yet?
Take a look at health care, which employs hundreds of thousands in everything from big academic medical centers to upstart biotech companies in Cambridge.
The National Institutes of Health, which spends more money per capita in Massachusetts than in any other state, will have to cut $2.5 billion in research grants if the fiscal cliff reductions aren’t halted.
Massachusetts hospitals could face hundreds of millions in cuts to federal funding for training and other basic operations as well, with the federal government set to cut health care spending by 2 percent.
All that could mean lots of jobs lost – and lots of would-be sellers and buyers signing up for unemployment checks instead of checking out open houses.
Scott Van Voorhis can be reached at sbvanvoorhis@hotmail.com
