What Will a Trump Presidency Mean for Real Estate?
by BPE Lawyer Steve Beed
Trump is at his core a “real estate guy”. He’s spent his life in real estate development and management and his real estate holding constitute the bulk of his holdings. So it is safe to conclude that a President Trump will be a supporter of real estate investment and ownership. And with a Republican majority in the House and Senate, there is a good chance that he’ll get his proposals through.
Based on the limited details which have come out so far, here are real estate related Policy changes that he has indicated he wants to put into effect:
1. Tax Reform – Trump has made tax changes one of the highest priorities of his administration. His proposed combination of tax cuts and government spending could boost the economy, enabling more people to afford a home, and which in turn could stimulate the growth of property values. Proposals to simplify the enormous Tax Code could bring the good and the bad depending upon your financial situation. Will the current deductions for mortgage interest and property tax remain or will they be cut to offset reductions in tax rates? Similar questions exist concerning capital gains taxes and 1031 Exchanges. Whether Trump will attack real estate depreciation is unclear since he has personally used these to his benefit. Perhaps most importantly a reduction in the corporate tax from 33% to 17% might dramatically change the way a lot of organizations operate and leave many more dollars available for real estate and other investment.
2. Easing Regulatory Burdens on Lenders – The Dodd-Frank financial regulations were adopted to curtail the types of lender abuse that led to the Recession and bail out. But many including Trump feel the regulations have gone too far and imposed a crippling burden on the local and community banks that make most home loans. Easing these restrictions could make housing more affordable and home loans more available. But they could also lead to new risks to the economy if lenders get too lax in their underwriting. While many think that removing investment banks from home lending is needed to stop abuses, as was done with Glass-Steagel following the Great Depression, there is little chance of that happening due to the global nature of our current economy.
3. Easing Regulation on Builders – Trump has called the building industry the most regulated in the country and has estimated that 25% of the costs of a new home is consumed due to regulation. These include everything from excessive Code requirements, to abusive land use and zoning burdens, which together make the costs of developing land excessive and slow. Trump the builder wants to cut this down dramatically which could lead to a boost to the housing supply. However, since most such regulation is done locally, it is unclear how he would make this work. Yet his unique real estate background as a deal maker may bring results.
4. Fannie Mae and Freddie Mac will change – Both Trump and the Republican Party want to do away with or at least shrink these organizations whose excesses cost billions of dollars in the Crash. However, the now reformed organizations own or insure over 45% of all loans made in the U.S. No plan has emerged as to what will happen here but it is likely that eliminating them entirely could adversely affect the availability of real estate loans… something that Trump is not likely to support. Similarly, look for new restrictions on the availability of FHA loans for wealthy home buyers and possibly limiting their use to low-income, first time buyers, who lack the 20% down payment typically required in conventional loans.
Summary: Overall, we may be in for a roller coaster ride while this shakes out. The one bottom-line reality here is that President Trump will have a hard time getting anywhere near a balanced Budget if his combination of reducing taxes and increasing spending does not find a means of raising more income. There likely is not much he can do to change the big Federal entitlements such as Social Security and Medicaid so for his economic plans to be successful, his target must be the creation of more jobs reducing unemployment and increasing tax dollars. Can he do it? We’ll all watch and see.
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