It’s far too early to tell what the Trump Presidency will mean for the apartment business—but experts have at least come up with their list of the biggest questions that a Trump White House poses for their business.
“The operative word for the commercial real estate sales market for the near future is ‘uncertainty,’” says Jay Parsons, vice president for MPF Research.
During the campaign, Trump made promises that would have an earthshaking effect on the real estate markets. His pledge to deport millions of undocumented immigrants would empty apartments around the country. A proposed $1 trillion infrastructure program could boost the economy. For now, though, real estate professionals are focused on more mundane proposals already underway in Congress.
“The biggest issue for us is tax reform,” says Dave Borsos, vice president of capital markets for the National Multifamily Housing Council (NMHC).
Republicans in Congress have already released a blueprint for tax reform. Bipartisan negotiations have been underway for years. However, it’s not yet clear how the priorities of a Trump White House will match the priorities of Congress. “The Trump campaign was somewhat vague when it came to specific policy goals and imperatives during the campaign,” says Cindy Chetti, NMHC’s senior vice president for government affairs.
Real estate groups like NMHC and the Real Estate Roundtable have already spent years working with Congress to show the value of programs like the federal low-income housing tax credit, which helps builds more than 100,000 new units of affordable housing every year. “NMHC and NAA will be advocating strongly to preserve the pass-through tax structure, retain sensible cost recovery rules and preserve the LIHTC,” says Chetti.
Trump has also promised to create a $1 trillion infrastructure program. If it happens, such a program would be larger than the American Recovery and Reinvestment Act of 2009, also known as the Stimulus package. “There has been a lot of discussion on infrastructure, which is not simply roads,” says Borsos. “Housing is part of infrastructure spending.”
The financial markets have responded positively to the plan. Infrastructure investment could help support growth in the U.S. economy. “If the economy continues to grow, the capital markets and the fundamentals should remain healthy,” says Parsons.
It’s not clear how the Trump administration will pay for its infrastructure plan, however, which the President-Elect says will not add to the budget deficit. Instead, funding for infrastructure projects will come from public/private partnerships. “This focus on ‘pay-for’ will make it difficult to move anything through Congress,” says Borsos.
Public housing advocates could point to one model of revenue-neutral public/private partnerships in the existing Rental Assistance Demonstration Programs run by the U.S. Department of Housing of Urban Development. The RAD program brings private bank financing to public housing by converting the existing stream of federal operating subsidies into a form that can support a bank loan.
The President-Elect has promised to roll back a long list of rules and regulations, ranging from the Environmental Protection Agency’s Waters of the United States rule to the Department of Labor’s final rule on overtime pay. “All of which could potentially benefit apartment firms,” says Chetti.
However, laws like the Dodd–Frank Wall Street Reform and Consumer Protection Act of 2010 may be difficult to wipe away. “Congress can’t simply repeal Dodd-Frank. They would have to replace it with other legislation,” says Borsos.
Instead, the new Administration is likely to make more targeted changes. “Trump and many Republicans in Congress will likely be successful in unwinding at least some lending regulations, such as the risk retention rule,” says Parson. “That could certainly provide a boost, particularly now that regulators have commercial real estate lenders in their crosshairs.”
Recent Fair Housing regulations set by HUD are also likely to be targeted by a Trump White House. However, creating a rule like “Affirmatively Furthering Fair Housing” took years of public comments and other administrative requirements. Removing the rule would require a similar process.
President Elect Trump also said his administration will deport 2 million to 3 million undocumented immigrants with criminal records now living in the United States. If he succeeds, that would likely result in close to a 1.0 percent drop in the U.S. population and a commensurate drop in demand for rental housing.
So far, the rental housing business is not acting as if a cataclysmic change like this is about to take place. “We haven’t heard anything from our members preparing for that,” says Borsos.
Russian investors may also return to investing in U.S. real estate. “There have been indications from many of our clients that there may be improved relations between the U.S. and Russia under a Trump Presidency,” says Ed Mermelstein, a real estate attorney who represents a number of high-net-worth Russian clients. “We are starting to see an increased interest from our clients.”
Mermelstein expects Russian investors to once again buy U.S. real estate at the pace set a few years ago, before tension and sanctions between the U.S. and Russia slowed the flow of investment.
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