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With Trump back in office in 2024, his policies are once again a focal point for their potential impact on the U.S. real estate market. From his first term in 2017 to his recent proposals in 2024, the real estate market faces a mix of opportunities and challenges. This post reviews the impact of his 2017 policies and explores what 2024 might bring.
Policy Overview from 2017: A Transformative Year for Real Estate
1. Tax Reform: Opening New Opportunities for Commercial Real Estate
In 2017, Trump’s Tax Cuts and Jobs Act had a widespread impact on real estate. Corporate tax rates were reduced from 35% to 21%, greatly benefiting commercial real estate. Lower corporate tax burdens attracted investments into office buildings, retail centers, and other commercial real estate, boosting market activity. The law also allowed a 20% deduction for REIT dividends, making real estate investment trusts (REITs) more appealing.
However, the tax reform also limited state and local tax (SALT) deductions and capped mortgage interest deductions, which particularly impacted high-tax states. This policy caused higher homeownership costs in states like California and New York, which dampened homebuying demand.
2. Trade Policy: Rising Construction Costs
The Trump administration’s protectionist trade policy, especially tariffs on China, drove up costs for imported construction materials. This directly impacted real estate developers, with costs for essential materials like steel and aluminum rising significantly, leading to increased prices for new homes and limited housing supply.
3. Immigration Policy: Impact on Rental Demand and the Construction Industry
Following 2017, the administration’s immigration restrictions reduced the number of immigrants, lowering housing demand, particularly in rental markets. Additionally, reduced immigration directly impacted the construction labor supply, resulting in a labor shortage and rising wages, which further challenged developers.
2024: Policy Shifts on the Horizon
1. Continued Tax Reductions to Favor Commercial Real Estate
In 2024, Trump promises to further lower corporate tax rates, continuing to attract capital into commercial real estate. His proposals for individual income tax cuts could also boost homebuying demand, stimulating the residential market.
However, increased federal deficits may accompany these tax cuts, potentially impacting the broader economy’s stability over the long term. Investors should carefully weigh the short-term benefits of tax cuts against possible long-term economic risks.
2. Push to Reduce Mortgage Rates: The Gap Between Promise and Reality
Although Trump has pledged to reduce mortgage rates to as low as 3%, saving homebuyers thousands of dollars annually, the reality is more complex. Experts note that the president cannot directly control mortgage rates, even if he wishes to. Mortgage rates are influenced by the Federal Reserve and bond markets, which respond to broader economic factors like inflation, fiscal policy, and investor expectations. While the Fed can influence rates, mortgage rates primarily track the 10-year Treasury yield.
Recently, despite Fed rate cuts, mortgage rates have risen due to concerns over deficit spending that could result from a Republican-controlled government. The 10-year Treasury yield has surged to 4.44%, indicating that mortgage rates may continue to rise in the near term, despite Trump’s intentions. Even if Trump seeks lower rates, bond market reactions and broader economic factors may push rates higher in the short term.
3. Continued Trade Protection: Impacts on Construction Costs and Housing Prices
Trump’s 2024 policies include continuing trade protection, particularly with China. This could keep construction material costs high, further straining real estate developers. Higher construction costs could keep housing prices elevated, impacting affordability for both homebuyers and renters.
4. Stricter Immigration Policy: Dual Challenges in Labor Supply and Market Demand
Stricter immigration policies could affect labor supply in the construction industry, increasing building costs and potentially slowing new housing projects. In high-immigration areas, demand for rentals could also drop, which may affect rental markets. While short-term pressures on housing demand may ease in certain regions, the long-term impacts on labor supply may hamper sustainable real estate development.
5. Environmental Policy Relaxation: A Challenge for Sustainable Real Estate
Trump’s environmental policy leans toward relaxed regulations, promoting the fossil fuel industry. This could reduce compliance costs for developers in the short term. However, in an era focused on sustainability, the long-term attractiveness of U.S. real estate may be impacted, as sustainability increasingly influences market preferences.
The Broader Impact of Trump’s Policies on Real Estate
On the one hand, Trump’s policies may increase activity in the real estate market, particularly for commercial real estate. On the other hand, immigration restrictions, rising construction costs, and relaxed environmental policies introduce uncertainties. His pledge to reduce mortgage rates has drawn attention, but achieving this may be challenging, as recent trends indicate rates could continue to climb in the short term.
Investment Advice:
1.Short-term Strategy: Focus on commercial real estate and multi-family properties, particularly in markets with high rental returns, to benefit from tax cuts and potentially lower mortgage rates.
2.Long-term Caution: Monitor rising material and labor costs and the impact of environmental policies on the market’s sustainability appeal.
Regardless of Trump’s policy direction, the long-term value of U.S. real estate lies in a balanced supply-demand dynamic, sustainability, and adaptability to changing markets. Investors should closely follow policy changes and position themselves to capture the best opportunities in an evolving market.
