Potential Election Impacts on the Real Estate Sector
As the 2024 election cycle unfolds, the landscape of U.S. policy is poised for potential shifts that could significantly impact various sectors. With the possibility of a Harris or Trump administration, stakeholders in the real estate market are preparing for changes that could reshape the industry. Under a Harris administration, the implications of policies such as proposed tax reforms, labor policy adjustments, enhanced environmental regulations and mortgage incentives are far-reaching. In contrast, a Trump administration would bring significant changes through proposed deregulation, leadership shifts, tax reforms and environmental policy adjustments.
Curious about how a Trump or Harris administration could impact the real estate sector? To a large degree, the extent to which either a Trump or Harris administration will be able to enact their plans will depend on the outcome of the congressional elections, but read on to discover the potential changes (and their implications) based upon what the candidates have said.
Under a Harris administration, a continued robust regulatory environment can be expected. The focus would likely remain on promoting green energy projects and environmental sustainability. This approach could have multiple implications for the real estate sector, particularly through encouraging investments in sustainable housing and construction practices.
Furthermore, while we wait to see the Basel III Endgame re-proposal, it is likely that a Harris administration will implement it, which could result in increased banking costs and alternative funding structures (securitization vs. direct lending) to achieve better capital treatment. While this may make banks more resilient, private credit and non-bank lenders may benefit as they are able to finance on more competitive terms.
In contrast, a Trump administration would 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 abandoned if Trump is re-elected. 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.
A Trump administration would 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 would seek to repeal greenhouse gas emissions legislation. Increased energy production could benefit data center development and lower prices, but increase climate change-related risks.
Under a Harris administration, there will likely be a continuation of Biden-era environmental policies, which suggests a bolstering of green initiatives that may lead to expanded financial incentives for eco-friendly real estate developments. This includes potential PACE (Property Assessed Clean Energy) lending opportunities and promotion of electric vehicles (EVs), making green buildings and real estate developments more appealing.
However, integrating environmental justice in agency reviews could increase review times and compliance costs for real estate projects. Despite higher initial costs, there could be long-term value growth for properties adhering to sustainable and environmental standards.
The prospective approval of the PRO Act and other labor-friendly policies under Harris, such as raising the federal minimum wage to US$20 per hour and implementing paid leave, would likely increase operating costs for construction companies and real estate firms. This could, in turn, affect housing affordability and the cost of real estate developments. The stricter classification for independent contractors could also impact the flexibility and cost management of labor in the real estate sector.
A Trump administration would see 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 could lead to more competitively priced bank lending structures. Replacing CFPB head Rohit Chopra could 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.
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.
Harris is likely to continue allowing the Government-Sponsored Enterprises (GSEs) cap to increase, facilitating the availability of affordable mortgage and multifamily loans. This policy would support housing affordability but could limit private-label securitizations, affecting the landscape of mortgage lending.
Under Trump, privatizing the GSEs would 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 could become more attractive, impacting the real estate financing landscape.
The Harris campaign proposes increasing the corporate tax rate from 21 percent to 28 percent, which would raise costs for businesses and enhance the value of deductions and tax planning strategies. This change would particularly impact non-U.S. persons using domestic corporations to “block” U.S. trade or business activity. Harris also supports taxing carried interest as ordinary income for individuals earning over US$1 million, potentially creating a “rush to exit” scenario for founders and family-owned businesses.
By contrast, 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. If Trump is re-elected, it’s likely that he 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.
Harris has proposed limiting 1031 like-kind exchanges to US$500,000 in gains and providing a US$25,000 tax credit for first-time homebuyers, spread over four years, to increase home affordability and stimulate the housing market. Although these changes could increase the tax burden on real estate companies, the US$25,000 tax credit for first-time homebuyers could simultaneously stimulate demand in the housing market, particularly benefiting private credit actors who finance homebuilders.
Conversely, Trump would 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.
A return to fundamental antitrust principles and reduced regulatory overreach based on unprecedented theories would provide more regulatory certainty regarding whether transactions are likely to obtain antitrust clearance. This shift would rely on objective evidence and economic analysis, making the regulatory landscape more predictable for businesses.
Under Trump, the departure of Lina Khan as FTC Chair would be likely. This would create a more business-friendly environment, encouraging investments in innovative companies and leading to a regulatory atmosphere more conducive to business growth and development. An increase in negotiated settlements, which have largely disappeared under the current administration, would result in fewer lawsuits, reducing the length and cost of legal battles and promoting a return to reasonable remedies that efficiently balance the interests of the government, private companies and consumers.
Harris has not commented on the potential departure of Lina Khan. Harris supports increased enforcement in the healthcare and life sciences sectors, which could lead to more investigations and litigations under novel antitrust theories, though not necessarily successful outcomes in all cases.
Under a Harris administration, the real estate sector is expected to encounter a mix of challenges and opportunities driven by regulatory changes, tax policies and labor reforms. While increased compliance costs and operating expenses might pose short-term challenges, initiatives aimed at promoting green energy and affordable housing could fuel growth in sustainable and accessible real estate development.
Under a 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 would need to be proactive in strategic planning and compliance to navigate these potential changes effectively.
This post was originally published on here
