With the drama of the 2004 election behind us, we begin a new year with a new Congress. Usually the re-election of a sitting President whose party retains control of Congress means business as usual with no fundamental policy shifts. But President Bush appears to be breaking the mold. In addition to continuing the war on terrorism and the Iraqi conflict, the Administration is preparing for an ambitious second-term domestic agenda focused on simplifying the tax code and overhauling the Social Security system.

The implications for the apartment sector, in particular, and the broader real estate industry are numerous. To begin with, Congress is likely to be consumed with the administration's new priorities. This means real estate-specific initiatives will take a back seat and will, for the most part, be handled as part of the normal appropriations process. One exception to this could be reform of the Government Sponsored Enterprises (GSEs), Fannie Mae and Freddie Mac. The expanded Republican majority in Congress will give the Bush administration more leverage to strengthen regulatory oversight of Fannie and Freddie.

Tough choices ahead

The growing budget deficit will also impact real estate's legislative agenda. In 2004, the deficit was approximately $413 billion. President Bush says he wants to cut it in half within five years. This will be difficult, if not impossible, given the cost of homeland security, the war in Iraq and the potential costs of rewriting the income tax and Social Security systems. These initiatives will drain funds from other domestic programs, which will force the states to play a more crucial role in housing and economic development. Given housing's historically low profile in most political campaigns, this new attention to housing will require real estate advocates to keep a closer eye on developments in the states.

At Fannie Mae's annual housing conference in November, Governors Mitt Romney (R-Mass.) and Edward Rendell (D-Pa.) acknowledged the shift and identified housing and community development as top priorities. Romney has acknowledged that housing and community development issues are going to become absolutely crucial to his success as governor. One of his first decisions was to combine the Massachusetts departments responsible for housing, the environment and transportation into a super agency to better coordinate resources.

Even with the new funding pressures on the states, Congress will still exert significant impact on the real estate sector. The apartment industry will face changes in the Section 8 Housing Choice Voucher Program, bankruptcy reform, class action/tort reform, homeownership initiatives, the need to extend terrorism insurance, tax reform and other issues when the 109th Congress convenes. The 2004 election results dramatically affect the environment in which these issues are considered.

In the Senate, Republicans are expected to use their four-seat gain to push for new ratios in the chamber's committees. This will mean significant reshuffling of panels with jurisdiction over housing-related issues. The biggest change, though, will be the departure of Sen. Tom Daschle, who lost his South Dakota Senate seat, as Senate Minority Leader and the ascension of Senator Harry Reid (D-Nev.) to that post. Reid has been called a quiet insider and a savvy legislative operator, traits he will need to guide his party through the Senate, where Republicans hold 55 seats.

A House Divided

By all accounts, the 109th Congress could be even more partisan than the already politically charged 108th Congress. In late November, House Speaker J. Dennis Hastert announced that the House of Representatives will only vote on bills if the majority of House Republicans support them. This change will further limit Democrat influence in the House and will make it more difficult to pass high-stakes legislation, which often needs Democratic support when it reaches the Senate in order to be enacted into law.

The legislation implementing many of the homeland security recommendations made by the 9-11 Commission was almost the policy's first victim. Although the final compromise bill negotiated by the Senate and House could have passed with a minority of Republicans and strong support from Democrats, Hastert refused to bring the bill to the floor until more Republican support was secured. As of this writing, Senate Majority Leader Bill Frist (R-Tenn.) is taking steps to rein in maverick Republicans who have not always voted the party line on legislation.

The partisan climate is heightened by the fact that more than four dozen experienced and skilled House and Senate members are leaving Congress due to election losses, career changes or retirements. For real estate advocates like the National Multi Housing Council/National Apartment Association Joint Legislative team, 2005 promises to be a challenging year, but one that is brimming with opportunity.

Jim Arbury is Senior Vice President of Government Affairs for the Washington, D.C.-based National Multi Housing Council and its joint legislative partner, the National Apartment Association.