What the 2024 Presidential Election Means for CRE
Commercial real estate always pays close attention to national elections, but the upcoming presidential election between Vice President Kamala Harris, Democrat, and former President Donald Trump, Republican, feels especially weighty. The candidates’ visions for the country differ vastly, including issues close to the heart of the CRE industry.
Front and center this election are tax policy and housing. Taxes will have a direct impact on CRE—who pays and how much. Housing will have a more indirect impact, though just as profound, real estate experts tell Commercial Property Executive. A more healthy housing market would benefit commercial property investors as well.
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“We want people to understand we’re not in a fight, but a conversation to reach mutual goals,” Real Estate Roundtable President and CEO Jeff DeBoer told CPE. “We know that these problems won’t be addressed without the assistance of public policy. Policymakers could make the wrong decision. Not because they don’t like real estate, but because they don’t understand the ramifications of their decisions.”
The key for the industry is to help policymakers understand those ramifications, DeBoer said. The difference between a future Democratic or future Republican administration would be one of starting points on taxes, housing and other policies critical to the industry.
“I would say that the starting point for a Harris administration would most likely be based on proposals which would substantially increase capital gains taxes, which would eliminate the 1031 exchange, and which would eliminate carried interest,” DeBoer said, while it is unlikely that the Trump administration would propose any of these.
“We have to make the case that the current rules are good for real estate and the economy, and, with a Trump administration, we may not have as steep a hill to climb,” DeBoer said.
One possibility of abolishing it would be in a divided government, because there are critics of carried interest on both sides of the aisle, even in the populist movement in the Republican Party, McCarthy said. “Even Trump in 2016 kind of endorsed rolling it back.”
Revisiting the 2017 tax cut
One of the signal policy achievements of the Trump administration was passage of the 2017 Tax Cuts and Jobs Act. Built into that law were provisions that need to be revisited— either to renew them or let them expire—by the end of 2025. Either a Harris administration or a Trump administration is going to take up that matter.
The 2017 law adjusted tax rates downward for individuals and businesses. The adjustments for individuals are set to expire in 2025, while the business cuts will continue, unless Congress acts.
“One of the most important things is the reduced individual tax rate, and that’s certainly on the line right now if Congress does not act in 2025 to preserve it,” said Bill Kilmer, senior vice president for legislative and political affairs at the Mortgage Bankers Association. The corporate rate is also a concern, he added, because nothing in tax law is very “permanent.”
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Given historical precedent, and the candidate’s respective statements, it is likely that a Democratic administration would likely push for higher rates, especially for businesses and wealthy individuals, who tend to own commercial real estate, while a Republican administration would either push to maintain the 2017 cuts or cut even more, especially for businesses and wealthy.
“From an operational standpoint, folks that are incorporated as C Corps, should be very concerned about what might happen to the corporate rate,” Kilmer said. “A Harris administration would probably want to raise the corporate rate as a means to raise revenue. Trump has called for a further lowering of that rate.”
Another tax consideration is 20 percent tax deduction created by the 2017 law for pass-through income for such businesses as sole proprietorships, partnerships, limited liability companies, S corporations, and limited liability partnerships, many of which own or manage commercial property assets.
A Democratic administration might let that deduction expire, or push to modify it so that high-income entities won’t benefit from it, Kilmer said.
“Democrats might seek to curtail the current law’s provision, maybe cap its utilization at $400,000 adjusted gross income,” Kilmer said. “That’s been kind of a magic number for the Biden administration, and I expect a Harris administration might use it as a key threshold as well. As for a Trump administration, there would be a push for permanence, probably as a negotiating tactic, and then trying to see how far they could extend the current law.”
What the candidates say about taxes: Harris has proposed increasing the corporate tax rate from 21 percent to 28 percent, and increasing capital gains rate to 28 percent for those making $1 million or more. She would also tax carried interest as ordinary income, and limit like-kind exchanges to $500,000 in gain.
Trump has called for cutting the corporate tax rate from 21 percent to a range of 15 percent to 20 percent. He would make the 2017 TCJA individual income tax cuts and the TCJA estate tax cuts permanent. He has floated replacing personal income taxes with increased tariffs.
What the candidates say about economic development: Harris would provide a $50,000 deduction on small-business startup costs and offer “America Forward” tax credits to companies that invest in manufacturing. She has pledged to quadruple tax on corporate stock buybacks and she would reform the international tax system to disincentivize companies from shipping operations and jobs overseas.
Trump has said he would attract foreign companies with lower taxes and less regulation. He would
impose tariffs on U.S. companies that ship jobs abroad, and he would inflict tariffs of up to 60 percent on Chinese imports and 10 percent to 20 percent on imports from other companies.
Addressing the housing crisis
There isn’t enough U.S. housing at prices that many people can afford. That’s an economic and social problem that affects not only people shut out of the housing market but the rest of the real estate industry as well. A healthy housing market benefits the wider economy and all property types. But how to get there?
Both candidates acknowledge the housing crisis but offer different ideas about fixing it. Traditionally, Democrats have been for government intervention in the market, and their 2024 platform reflects that, with proposals that include 3 million new residential units, assistance to homebuyers and renters, and crackdowns on perceived abuses by landlords and more.
Traditionally, Republicans have favored a more hands-off approach to the housing market, but in the current climate, even the 2024 Republican party platform proposes various government actions, such as opening limited portions of federal lands to allow for new home construction and promoting homeownership through tax incentives and support for first-time buyers.
There is a fairly clear line on any national policy on rent control—a matter left to localities and the states (usually to ban it) in the past. The Biden administration has proposed various measures that it doesn’t call rent control, but which amount to it, such as a 5 percent annual cap on rent increases for existing properties owned by large landlords who want to claim certain federal tax credits.
A future Harris administration may take up the idea again, while a future Trump administration is certain not to. The industry doesn’t like the idea, either.
“If you look at places like St. Paul [Minn.], which implemented rent control, and you look at the permitting and what’s going on in places like that, developers have walked away from those markets,” said National Multifamily Housing Council Senior Vice President for Government Affairs Cindy Chetti. “Rent control is a failed policy that doesn’t help the supply issue.”
A few kinds of action on housing remain possible, regardless of the presidential outcome and even in the event of a divided federal government, real estate experts note.
The Revitalizing Downtowns and Main Street Act, which is bipartisan bill in the House, and pushed by Democrats in the Senate, may well be something that a new administration takes up, regardless of party, according to David McCarthy, managing director, head of legislative affairs at CREFC.
“That bill would provide tax credits for conversions of underutilized commercial real estate to affordable housing,” McCarthy said. “That one is maybe a little bit of a longer play, but also something you could see getting a bipartisan tax bill. It will be part of the conversation.”
What the candidates say about housing: To increase housing supply, Harris has promised to work with builders and developers to construct 3 million units of housing by 2029, while opening up federal land for construction. She would also work with local governments to streamline permitting and review processes and expand the Low Income Housing Tax Credit program.
To improve housing affordability, Harris has pledged to pass the Preventing the Algorithmic Facilitation of Rental Housing Cartels Act to ban the use of algorithms in setting rents and the Pass the Stop Predatory Investing Act to prevent mass investment in single-family rental houses. She would also expand rental assistance for veterans and other low-income renters provide $25,000 in down payment assistance to first-time homebuyers.
Trump will also open up federal land for housing construction and work with local governments to ease the permitting and review process. By controlling immigration, as he has vowed to do, he will reduce pressure on the housing market.
To make housing more affordable, he has talked of possibly creating housing-based Opportunity Zones and reducing regulation on developers. He would expand housing assistance for veterans and lower energy costs by increasing fossil fuel production.
Read the October 2024 issue of CPE.
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