Potential Election Impacts on the Real Estate Sector
With President-elect Trump announced as the winner of the 2024 election, the landscape of U.S. policy is poised for potential shifts that could significantly impact various sectors. Stakeholders in the real estate market are preparing for changes that could reshape the industry. The Trump administration is expected to bring significant changes through proposed deregulation, leadership shifts, tax reforms and environmental policy adjustments.
To a large degree, the extent to which the Trump administration will be able to enact its plans will depend on the outcome of the congressional elections, but read on to discover the potential changes and their implications.
Regulatory Environment
The Trump administration will likely pursue deregulation through executive orders, bypassing the need for congressional action. This could lead to significant changes in the regulatory landscape affecting the real estate sector. While Trump has not directly commented on Basel III Endgame, conservative appointees might undermine the proposal, making bank lending less costly. However, significant bank deregulation could pose risks of bank closures, impacting real estate financing.
The SEC’s Greenhouse Gas Disclosure Rule, currently paused, is likely to be under Trump. This could reduce compliance costs for real estate firms, but may face legal challenges following the Loper Bright decision. Additionally, Trump may limit regulations impacting homebuilding and open federal lands for development, potentially increasing the supply of housing.
Green Energy and Environmental Policies
The Trump administration will likely reduce the environmental regulatory burden, potentially increasing short-term profitability, but risking non-compliance with ESG requirements. Revisiting PFAS regulations could have significant implications for companies involved in these areas. Trump has also indicated he will seek to repeal greenhouse gas emissions legislation. Increased energy production could benefit data center development and lower prices, but increase climate change-related risks.
Change of Personnel and Leadership
The Trump administration is expected to make changes in key federal positions, some requiring Senate consent. Acting replacements could initiate changes, although with limited authority. Replacements of figures like Federal Reserve Vice Chair for Supervision Michael Barr and Acting Comptroller of the Currency Michael Hsu may lead to more competitively priced bank lending structures. Replacing CFPB head Rohit Chopra may result in reduced regulations impacting banks and financial services firms. Speculation exists that Trump might seek to remove Federal Reserve Chair Jerome Powell, potentially encouraging faster interest rate reductions.
Regulation on Institutional Owernership
Proposals have also been floated to regulate institutional ownership of residential properties. These regulations could require institutions to divest their residential properties and impose an excise tax on rents derived from these properties. While such measures aim to prevent market monopolization and improve housing affordability, they might also lead to a reshuffling of property ownership and investment strategies in the real estate sector.
Mortgage and Housing Incentives
Trump will likely seek to privatize GSEs, but this will require congressional action or FHFA intervention. This could increase lending and securitization volumes but raise costs for homebuyers if state and local tax exemptions are removed. Private label deals may become more attractive, impacting the real estate financing landscape.
Tax and Tariff Policies
Trump has expressed interest in reducing corporate tax rates from 21 percent to 20 percent. In addition, companies that manufacture their products in the United States would be eligible for a special 15 percent corporate rate. These changes would reduce business taxation and are intended to incentivize onshoring or U.S. investment. It’s likely that Trump will aim to permanently extend the tax cuts introduced by the 2017 Tax Cuts and Jobs Act. Trump has also suggested he seeks to repeal a provision from the 2017 tax cut package that limits a taxpayer’s state and local tax deduction (SALT), adding US$1.2 trillion to the cost of extending the act over the next 10 years. Trump will also likely seek to pass a new TCJA, maintaining real estate-favoring provisions like the 1031 Exchange and carried interest provisions, encouraging investment in real estate assets.
Antitrust Policies
A return to fundamental antitrust principles and reduced regulatory overreach will provide more regulatory certainty as to whether transactions will likely obtain antitrust clearance based on objective evidence and economics. The expected departure of Lina Khan as FTC Chair may create a more business-friendly environment, encouraging investments in innovative companies. An increase in negotiated settlements, which have largely disappeared under the Biden administration, may lead to fewer lawsuits and a return to more settlements that efficiently balance the interests of government, private companies and consumers.
Under the Trump administration, the real estate sector will likely face new circumstances defined by deregulation, leadership changes and tax reforms. While reduced compliance costs and regulatory burdens might pose short-term benefits, the potential risks associated with significant deregulation and environmental policy changes could impact long-term sustainability.
Real estate stakeholders will need to be proactive in strategic planning and compliance to navigate these potential changes effectively.
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