We wrote—in general terms—about real estate and the elections in July this year, noting what generally happens to the housing market in the months leading up to consequential elections. Notably, housing prices do not tend to sustain the same level of increase they have had prior to election season and the uncertainty of what the outcome will be tends to hold many investors back from taking on new projects. That, in conjunction with the impact and aftermath of Covid-19, makes 2020 an uncertain and unpredictable year. As we all know, uncertainty is the bane of real estate investing.
Let’s take a look at some of the issues about which the candidates are talking to get a sense of in which direction are they leaning? Perhaps we can project how those positions will impact investing into real estate.
Single Family Home Zoning
- Trump intends to eliminate the zoning that allows low income housing to be built interspersed in suburbs. His view is that this will safeguard home prices in suburbia—the best place to invest in the real estate market.
- Biden intends to allow low-income housing in all locales, without restricting those types of developments to any specific place. His view is that the government should offer 7 million to 8 million more Section 8 vouchers so that anyone who qualifies can have such a voucher.
The 1031 Tax Exchange
The 1031 Tax Exchange allows one to defer paying Capital Gains taxes when you sell an investment property and reinvest the proceeds from the sale within certain time limits in a property or properties of like kind and equal or greater value.
- Trump reworked the 1031 tax code provision so that it applied only to real estate.
- Biden proposes to make the exchange available only to those making less than $400,000 per year.
- Trump wants to keep corporate taxes around 21%, down from 38%, offering some relief to investors.
- Biden looks to bring in $27 Trillion in more tax revenue over 10 years, raising corporate taxes from the proposed 21% to 28%; one of the more troubling concerns besetting investors. And in a campaign statement, he said he would also increase taxes on the middle class, though now he is trying to walk that back.
Government Involvement in Housing
To fix some of the issues in housing, some people look to government policies, but there are understandable cautions. For example, if a residential developer is required to sell some of their units below market price as affordable housing, that loss must be covered somewhere. In general, the costs to build are fixed, so if some of the units are sold below market rate, and the developer is losing money as a result, they will likely distribute the loss across the other units to offset it. That raises the cost of the other units to the buyer or renter and will effectively price some people out of the market.
- Trump wants less regulation and less government oversite in real estate development in general. His goal is to reduce land use regulations (parking minimums, height restrictions, setback requirements, community review), which would lower the cost of building.
- Biden wants large-scale government intervention in the housing market—which could result in poorer housing outcomes through rent subsidization and increasing homelessness.
The Trump administration notes that a lack of housing supply is driving the rise in housing costs. His goal is to overcome the regulatory barriers imposed by Federal, State, local and tribal governments that hinder the development of housing. Not surprisingly, Trump is pro-real estate.
Biden’s proposals are for more housing subsidies in the housing sector; these policies would increase housing demand but fall short in encouraging the development of more housing supply.
“When it comes to the intersection of politics and real estate,” said Paradyme President Doug McAllister who is highly experienced in the business of politics, “understanding that elected officials sometimes cave into the loudest voice in the room, breaking under the pressures brought to bear on those seeking re-election is essential. If you are an investor you need to know everything you can about the area in which you want to invest in order to protect your investment.”
You don’t have to go it alone. It is far, far better to have professionals on your side when it comes to the uncertainty we face today, just six weeks from our Presidential election. If you need help understanding the ramifications of this election and how to come out on top, please call us! We’re here to help.