The Impact of the Election on Real Estate: A Practical Overview

Dov Hertz November 8, 2024

The recent election marked a significant moment for the real estate industry, and many in the sector have high expectations for the effect of new policies, especially regarding taxes, regulations, and the housing market.

Regulatory Reforms and Development

One of the most immediate effects of a new administration on real estate is the promise of regulatory rollbacks. The real estate sector often cites cumbersome regulations as a key barrier to construction and development. The deregulatory positions of the upcoming administration have created some optimism that federal rules governing land use, construction, and environmental standards might be loosened, helping developers bring projects to fruition faster and more affordably.

An effort to cut red tape aligns with the desires of many in the real estate community, including construction unions and developers who have felt encumbered by stringent environmental and permitting rules. The ability to streamline the approval process for projects, particularly those on underutilized federal land, could alleviate some of the bottlenecks that have slowed the pace of new construction in recent years.

Tax Policies: Opportunity Zones and SALT Deductions

The tax changes brought about by the 2017 Tax Cuts and Jobs Act also had a significant impact on the real estate industry. The law introduced several provisions that real estate professionals welcomed, including the expansion of Opportunity Zones. These zones were designed to spur investment in distressed communities by offering tax incentives, and many in the real estate world viewed them as a boon for revitalizing neighborhoods while providing tax breaks.

Additionally, support for preserving 1031 exchanges, which allow investors to defer capital gains taxes by reinvesting in like-kind properties, is another key issue for real estate players. During the previous administration, there were discussions about limiting these exchanges, but the new administration’s policies appear to indicate that this tax benefit will remain intact.

One of the more controversial tax policies was the $10,000 cap on state and local tax (SALT) deductions, which disproportionately affected high-tax states like New York and California. The reversal on the SALT cap position by the new administration, and the pledge to remove it, has been viewed favorably by real estate professionals in these regions. Removing this cap could potentially boost property values, especially in high-cost areas where buyers are particularly sensitive to the overall tax burden.

Housing Affordability and Supply

Housing shortages and affordability crises in major metropolitan areas have been a longstanding concern for local communities and the real estate industry, and lack of affordable housing was a key issue among voters. Despite a clear plan for addressing the housing supply issue by the upcoming administration, many in the real estate industry are hopeful that a general support for deregulation will result in more housing.

The immigration issue could have an impact on housing and construction, however, though the outcome of discussions on the subject is far from certain. Some think a shift on immigration could reduce housing demand and potentially prompt labor shortages for the construction industry, but many economists have noted that the impact on prices would likely be limited.

Tariffs and Inflation Concerns

Tariffs on goods, particularly from China, have the potential to increase construction costs by raising prices on imported materials such as steel and aluminum. This, in turn, could drive up the costs of new construction, affecting both residential and commercial projects. The entry-level housing market, which is already struggling to meet demand, could be especially sensitive to this. Some real estate professionals have warned that tariffs could lead to higher inflation and mortgage rates, making homeownership less affordable.

Market Sentiment and Long-Term Impact

Despite challenges, the overall sentiment in the real estate industry is positive. Stock markets have rallied, and real estate investors have cheered business policies that could be beneficial in the long run. A pro-business stance by the new administration could well lead to more opportunities for growth, particularly in the commercial real estate sector. Ultimately, any approach to the industry will require collaboration with Congress and local governments.

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The Impact of the Election on Real Estate

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The recent election marked a significant moment for the real estate industry, and many in the sector have high expectations for the effect of new policies.