Written by David Dodge

As we look ahead to the next four years, the commercial and residential real estate markets are poised for significant changes. Industry experts are analyzing the potential impacts of political and economic shifts, particularly in light of the recent election cycle and the policies that may emerge from it.

Political Landscape and Its Implications

The election of Donald Trump has sparked discussions about the future of real estate, given his extensive background in the industry. Gregg Logan, managing director of RCLCO, emphasizes that Trump's administration could lead to substantial changes in both commercial and residential sectors. His previous term saw the implementation of the Tax Cuts and Jobs Act of 2017, which temporarily stimulated economic growth but also raised concerns about long-term fiscal sustainability due to increased federal deficits.

Logan notes that the potential for less regulation and tax cuts could create opportunities for real estate professionals. However, he warns that the mixed effects of tariffs and immigration policies could lead to rapid price growth, complicating new investments. "Real estate stakeholders must remain adaptable," he advises, as they navigate these evolving dynamics.

Opportunities and Challenges Ahead

The prospect of tax breaks for high-income individuals could drive demand for luxury properties, particularly in exclusive markets. Logan points out that if Trump's tax policies favor the wealthy, we may see a surge in activity within the luxury real estate sector. However, this potential boon comes with challenges. Proposed tariffs, especially on imports from China, could inflate construction costs, making housing and commercial projects more expensive.

The ripple effects of rising inflation could prompt the Federal Reserve to increase interest rates, further complicating homeownership for middle- and lower-income buyers. Logan highlights that these rising costs could hinder the development of affordable housing, exacerbating the existing housing crisis.

Economic Drivers and Real Estate Demand

The U.S. economy remains a critical driver of real estate demand. Logan cites Goldman Sachs' estimates that tariffs could reduce GDP growth by 0.5 percentage points by mid-2025, which may slow down commercial real estate development in sensitive sectors like manufacturing and retail. While Trump's tax cuts might provide a short-term economic boost, the potential dampening effects of immigration policies and trade restrictions could stifle consumer spending and business investment.

Economists are divided on the inflation outlook during Trump's term. Some predict that a combination of tax cuts and increased federal spending could significantly drive inflation, raising costs for construction and mortgage rates, which would dampen demand for new homes.

The Role of Immigration Policies

Stricter immigration policies could have both direct and indirect effects on the real estate market. A reduced labor pool for construction could lead to increased wages and project costs, while fewer immigrants may lower demand for rental housing, particularly in urban areas that typically attract new arrivals. Logan suggests that the administration's approach to immigration could significantly impact the availability of affordable housing.

Potential Policy Changes and Their Impact

Rich Palacios Jr., director of research at John Burns Research and Consulting, emphasizes that presidential policies can shape housing markets for years. He estimates that the U.S. is currently undersupplied with housing, needing 1.5 million additional units to achieve balance. One potential policy change that could impact housing supply is the expansion of home construction on federal land, which may face regulatory and environmental hurdles.

Palacios also highlights the potential end of the SALT (state and local tax) cap, which could benefit high-priced markets by allowing residents to deduct more of their state and local taxes. This change could further stimulate demand in already strong housing markets along the coasts.

Conclusion

As we navigate the complexities of the real estate market over the next four years, it is clear that political and economic policies will play a pivotal role. While there are opportunities for growth, particularly in luxury markets, challenges such as rising costs and regulatory changes will require careful consideration from industry stakeholders. The interplay between these factors will ultimately shape the landscape of real estate in the years to come.

Sources

• https://www.rclco.com/
• https://www.goldmansachs.com/
• https://www.realestateconsulting.com/