The country has come a long way since Berkadia’s coverage of the Democratic Iowa Caucus and the election’s impact on real estate trends back in January. The result of the next presidential election is still anyone’s call, but we now have a clearer picture of the two roads our country might traverse in 2021.
With the debates in limbo and early voting already under way, election season is officially upon us. Here is a closer look at what we know about the candidates and how their respective visions for the future might impact the multifamily industry.
Policy Wildcards and Their Impacts on Real Estate Trends
Concrete updates on specific real estate policy, such as further guidance on the White House’s strategy for Opportunity Zones, have been limited. However, we do have a clearer picture of how other elements of each candidate’s platform could influence investor sentiment and apartment demand.
- Consider the CARES Act – One important note highlighted in the latest edition of Berkadia’s Conversations with the C-Suite webinar series was the long-term impact of the CARES Act passed in response to the COVID-19 pandemic. Policy included in the CARES Act, such as the loosening of interest expense limitations for real estate, have had major effects on the multifamily industry during these chaotic times. Review the webinar for more insights from Berkadia’s leadership of how the results of the election could influence real estate trends.
- Prepare for State-Level Tax Bumps – Many state governments are going to be hard pressed for cash once the country turns the corner on COVID-19. Even if President Donald Trump stays in the White House and the Tax Cut and Jobs Act is made permanent, state governments could put pressure on Congress to increase state and local tax caps as a means to recover revenue lost during the pandemic. If Presidential Candidate Joe Biden captures the most electoral votes, most expect he will allow the entire Tax Cut and Jobs Act to sunset. This process may be accelerated if Democrats gain control of the Senate as well.
- Capital Gains Tax at a Crossroads – The future of capital gains tax policy is somewhat at stake based on the outcome of the 2020 election. For those in the income bracket over $1 million, Biden has proposed raising the long-term capital gains and qualified dividend tax rate to 43.4%. In contrast, President Trump has signaled cutting the maximum capital gains rate to 15%, restructuring capital gains tax policy to reflect inflation, and introducing an extended capital gains tax holiday.
How Trump’s Presidency Could Impact Multifamily
President Trump’s campaign has highlighted the expansion of Opportunity Zones as a top priority, both in dialogue with press media and on the campaign website. It is not clear what mechanisms the administration will leverage in order to expand the program. However, Trump himself has recently signed an executive order that could provide some clarity on the administration’s approach.
The new executive order will push federal agencies to relocate their operations into Opportunity Zones. This approach could help to attract more foot traffic and retail business into Opportunity Zones by transforming them into newly established government job hubs, driving up demand for new apartment housing along the way.
While Opportunity Zones seem to be a central component of the administration’s messaging, we also identified three potential policy changes that could impact multifamily real estate trends if Trump is re-elected.
- Impact of Canadian Lumber Tariffs – The Trump administration placed tariffs on Canadian lumber that contributed to the rising cost of construction. The World Trade Organization recently flagged these tariffs as “unjustified,” but it remains to be seen if this will put pressure on the White House to make a change in policy. In the meantime, expect lumber prices to remain elevated headed into 2021. The Trump Administration has since appealed the WTO ruling.
- End of Fannie/Freddie Conservatorship – Plans to curb GSE lending have been well underway for months and will likely come to completion upon Trump’s reelection. With Fannie and Freddie providing a significant amount of lending support to multifamily projects, this trend will require developers to pursue creative new financing strategies as the industry goes through a period of adjustment. Additionally, the recent reform to housing finance makes it more difficult to acquire lending for multifamily projects in states with strong rent control laws.
- Reevaluating Fair Housing Rules – The White House recently signaled an interest in reforming fair housing law, specifically in rolling back elements of the Affirmatively Furthering Fair Housing rule. Most attention has gone to recent proposed changes that would prohibit “single events” from falling under the jurisdiction of disparate impact. This trend will have the largest impact in metros where strong zoning laws create obstacles for multifamily development.
How Biden’s Presidency Could Impact Multifamily
Former Vice President Joe Biden’s plan for housing is outlined in detail on the candidate’s website. The primary focuses of that plan, regarding the multifamily industry, are zoning reform, financial assistance for home buyers (including a tax rebate for home down payments), and a pledge to increase housing supply. Here are a few major highlights:
- More Money for Affordable – Biden is pushing for the establishment of a $100 billion Affordable Housing Fund, including $5 billion dedicated to affordable housing integrated into larger community developments. The former Vice-President would expand homeowner and renter rights nationally, likely modeled after policies passed in California, and increased protections for tenants facing foreclosure. Expect policy reform focused on eliminating instances of “exclusionary zoning” and discriminatory lending under a Biden presidency as well.
- Intentionality in Opportunity Zones – Biden has also suggested that he will look to reform Opportunity Zones to ensure that they have their intended effect of expanding access to housing. One strategy he may employ is requiring investors who benefit from Opportunity Zones to publicly disclose how their developments are positively impacting the local community. Imposing additional scrutiny on Opportunity Zone investors would place additional pressure on the government to properly incentivize affordable multifamily housing development.
- Reevaluating Fair Housing Rules – In the same vein, do not be surprised if an elected Biden reinstates or strengthens the fair housing rules that are currently under scrutiny by the Trump administration. Biden has also signaled an interest in increasing state and local tax caps and updating 1031 exchanges, so that they are only available to individuals making less than $400,000 annually.
Berkadia has built a best-in-class commercial real estate platform to provide our clients actionable insights and knowledgeable advice. Let us help you make informed decisions as we hit an important crossroads in November. Reach out to your local investment sales advisor or mortgage banking professional through our people and locations portal.