Entrepreneurs

The Rise of the Gig Economy and the Impact on the US Real Estate Market

By Brad Walker, CEO and Co-founder of Income&

The gig economy is here to stay. The number of people participating in the gig economy has increased 27% more than the growth in payroll employees over the last two decades, based on data from a recent academic report. Some industries have seen even greater change. The ground transportation industry, for example, has seen gig economy workers grow by 44% more than traditional payroll employees.

In California and early adopter cities like Austin and Nashville, the report suggested there had been major changes in employment patterns and a strong trend toward gig economy jobs replacing traditional W2 employee positions.

Also of interest, 81% of the increase in gig economy employment since 2012 took place in the top 25 largest US cities.

Keep in mind that not all of the growth in “gig work” is more software developers or designers or writers who deliver their work online. The number of contract workers in industries such as the home health care and the education sectors, for example, is up 400% from 2005 to 2015.

If the rise of the gig economy is thoughtfully managed by business and government leaders, then this emerging new economic model for earnings should not be too disruptive to other aspects of the economy such as consumer spending and the real estate market.

On the other hand, if the ongoing transition to the gig economy is mismanaged, and information workers are continually squeezed and denied collective bargaining and other worker rights, the rise of the gig economy will likely worsen income inequality. Greater income inequality will eventually stunt growth in much of the economy, and especially the housing market.

Movement toward Workers Rights for Self-Employed

Keep in mind that when businesses decide to use contingent workers instead of regular employees, they usually do not have to provide the legal protections that employees have enjoyed for decades. For example, if you hire gig workers a specific price to do a task, they might actually end up making less than minimum wage if the task ends up taking longer than expected.

Gig workers are also not eligible for unemployment insurance, which means that employers don’t have to pay premiums into the unemployment insurance fund for gig workers.

Some unscrupulous employers even reclassify employees as gig workers so they don’t have to pay these kind of employee benefits.

Fortunately, the Labor Department has recently tightened up the standards for when employees can be treated as independent contractors.

As we transition to the gig economy over the next few years, we must “rewrite” the contract between workers and employers so that contingent workers are not economically marginalized. A failure to do so will have serious long-term economic and social consequences.

Government and business leaders must come up with new policies that respect the flexibility of gig work while guaranteeing at least some workers’ rights.  

Ultimately, the future of gig workers will be decided in city halls, state legislatures, and board rooms as leaders debate the value of flexibility, the risks of regulation, and if 20th century labor laws remain the best way to protect workers in the 21st century gig economy.

Evolving Gig Economy Promotes Smart Cities

Smart cities are no longer just on the drawing boards of urban planners. High-tech hubs like Seattle, Austin, Boston and the Bay Area have already spent billions developing the infrastructure for networking, and the growth of the internet of things to include refrigerators, door bells and cars is pushing connected “smart” technology into every household, office and factory floor today.

Moreover, modern contingent workers have high expectations regarding quality of life, and want the convenience and great variety of experiences that smart cities provide.

According to Peter Miscovich of JLL, "Digital talent demand will drive corporate location strategies. If an employee is only going to visit the corporate office within brief intervals each week, then we really must provide the highest quality of enriched employee workplace experience."

Mark Gorman, Vice President of Corporate Real Estate & Facilities at Ciena, argues that knowledge workers are the "new natural resource," highlighting that businesses historically chose to locate near forests, rivers or mines so they would have access to those resources. Businesses today, on the other hand benefit from being close to their workers.

Gorman believes these changing economic trends are a creating a new paradigm in corporate real estate. This means that corporate real estate professionals need to go beyond just considering the existing workforce when making site selection decisions; they also need to consider how to use real estate to attract the workers an enterprise needs now and in the future.

Gig Workers Are Primary Reason Coworking Is Major Growth Sector in Commercial Real Estate

Although consulting firm Emergent Research points out that coworking represented a mere 1 to 1.5% of commercial office space across the US in 2016, the sector seems set for rapid growth over the next few years.

Based on data from a global coworking study, the industry is projected to see growth of 22% in 2017 with the total number of collaborative office spaces increasing to 13,800 locations across the world. Given there are around 17 million Americans doing gig work today, and only somewhere around 500,000 users currently renting coworking space in the US, the growth potential in this country alone is huge.

Technology Leading to Major Changes in Real Estate Industry

Technology is changing the delivery model of real estate services today. Real estate professionals must be flexible and evolve to prosper in this era of rapid technology-driven change.

New fintech companies have been chipping away at traditional brokerage services from various angles. It is inevitable that some aspects of the real estate agent’s/broker’s role will be replaced by technology and gig workers, but real estate professionals who keep up with technological change will survive.

Clients will ultimately choose the real estate service that makes the entire process the easiest for them. Brokers that can offer a one-stop-shop, from the appraiser to the surveyor to the lender, all via an online talent platform, will likely attract the most clients.

Mortgage Lenders Adapting Risk Models and Business Practices to Serve Self-Employed

Over the last few years, mortgage lenders have been developing new risk assessment models for the increasing number of self-employed gig workers seeking mortgages. These firms are working to increase the flexibility of business processes so they can provide mortgages to anyone who can demonstrate a sufficient cash flow.

For the most part, it is smaller firms who are doing most of the innovating in the mortgage industry, developing credit risk models based on bank balances, spending patterns and social media reputation instead of credit score and tax returns. That said, larger players are also joining the party today, snapping up these startups or hiring talent from them to develop their own alternative credit risk models.

As a final thought, keep in mind that the gig economy is not just for millennials and Gen-Xers. Baby boomers preparing for retirement or even already retired have acquired a variety of valuable skills during their careers, and many of these skills are in demand in today’s labor marketplace. In fact, a recent study suggests that around a quarter of the gig work in the US is performed by baby boomers.

Given the sexism and ageism prevalent in the modern workplace, one positive aspect of gig work is that your age, gender and ethnic background almost never factor into the hiring decision – all employers care about is getting the job done.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

Brad Walker

Brad Walker is the CEO of Income&. Before founding Income&, Brad Walker was director of institutional product and strategy for PENSCO Trust Company, the leading alternate asset custodian in the United States.

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