Biden vs. Trump: What’s at stake for real estate?

As the White House race heats up, here’s where the president and former vice president stand on housing laws and property taxes

National Archive Issue /
Sep.September 28, 2020 12:15 PM

Joe Biden and Donald Trump

Biden’s $775B ‘caring economy’ plan would kill 1031 exchanges

Joe Biden went after one of the real estate industry’s favorite tax benefits last month.

The presumptive Democratic presidential nominee proposed his “caring economy” plan to  fund a child- and elderly-care spending platform, in part by closing a loophole used by many commercial property investors.

Biden proposed eliminating 1031 “like-kind” exchanges for investors with annual incomes greater than $400,000 as part of his plan to finance $775 billion in government spending over the next 10 years.

But real estate industry experts noted that efforts to eliminate 1031 exchanges have been made before. The reason the tax benefit still stands, they said, is because lawmakers recognize its positive impact on the economy.

“They’ve talked about getting rid of 1031s for years, so I’m not surprised it would be in the Biden plan,” said Stuart Saft, head of the real estate department at law firm Holland & Knight. “Whenever Congress looked at these things, it’s been preserved.”

Saft stressed that eliminating the exchange at a time when the real estate industry is reeling from the coronavirus would be a major blow to the struggling economy. “It would just pull the rug out from underneath a very huge part of the economy,” he said.

Biden said that his proposal, which would also limit investors’ ability to offset their income tax bills with real estate losses, would add millions of “shovel-ready” jobs to the economy — particularly for women and minorities.

“The way we pay for it is by rolling back unproductive tax cuts: some of the $2 trillion tax cut the president put through,” he said during a speech in Delaware in late July. “Closing loopholes. Unproductive tax cuts for high-income real estate investors while ensuring high-income earners pay their tax bills.”

Like-kind exchanges have been part of the Internal Revenue Code since 1921. They allow real estate investors to defer capital-gains taxes when they sell properties by directing the proceeds into new investments, usually within a few months after the sale. But more than just deferring taxes, investors continually roll the gains into new properties, often in perpetuity — effectively eliminating those tax liabilities.

“In real estate, unlike in stocks and securities where you pay tax on your trading gains, you can just keep rolling over, so people do this for decades and decades,” Stephen Land of law firm Duval & Stachenfeld told The Real Deal in 2016.

Time Equities CEO Francis Greenburger said 1031 exchanges are “critical to the economic function of the real estate markets” and argued that efforts to cut them come from a lack of understanding about their economic benefits.

“Somebody who’s talking about eliminating these doesn’t fully comprehend why this is a good thing,” he said. “They’re just looking at it superficially.” —Rich Bockmann


Sizing up Kamala Harris’s real estate record

Sen. Kamala Harris

While serving as California attorney general, Kamala Harris could have gone after Steve Mnuchin for alleged mortgage fraud at his company, OneWest, but didn’t.

OneWest foreclosed on more than 36,000 California homeowners in the years following the Great Recession. Harris’ office conducted a preliminary investigation, and deputy attorneys general recommended the state take action, but no charges were brought.

On other occasions, however, Harris, who was recently named by Democratic presidential nominee Joe Biden as his pick for vice president, has taken the battle to the industry.

In 2012, she negotiated the second-largest civil settlement in U.S. history, for predatory practices that contributed to the foreclosure crisis. It secured $25 billion for homeowners from the country’s biggest lenders, including Bank of America, Wells Fargo, JPMorgan Chase and Citigroup. Even though the banks had agreed upon a far lower amount with the Obama administration and other states, Harris walked away from the table until they agreed to pay billions of dollars more.

Harris is the first African-American female vice presidential candidate — in a year when longstanding racial tensions have roiled communities. The police killing of George Floyd unleashed a public outcry and nationwide protests against police brutality. The haphazard federal response to the Covid-19 crisis has also given more force to criticism of President Donald Trump, whose Wall Street donors have mostly abandoned him in favor of Biden.

James Whelan, president of the Real Estate Board of New York, called Harris’ nomination an “exciting moment” that will impact generations to come. “In a country as diverse as ours, we must continue to make strides like these to include a broader spectrum of voices in every industry and every institution, including the highest office in the land,” he said in a statement.

A lot has happened since Harris threw her hat in the ring for the Democratic presidential nomination. She officially withdrew her candidacy on Dec. 3, 2019, and endorsed Biden three months later.

Her presidential platform, however, included points that may not sit well with real estate interests, including her position that “housing is a human right.” In November 2019, she and Rep. Maxine Waters introduced a bill that would invest more than $100 billion in affordable housing, including $10 billion to ease or eliminate zoning requirements.

Harris said she would pass legislation to provide a tax credit for renters spending over 30 percent of their income on rent and utilities, the level at which tenants are considered to be rent-burdened. She also supported a federal minimum wage of $15, which developers have said would drive up their construction costs.

Last year, she also teamed up with Rep. Alexandria Ocasio-Cortez — the subject of intense criticism from many in the real estate community — to eliminate the “one-strike rule” in public housing, a Clinton-era policy allowing residents to be evicted for violent or drug-related crimes. The legislation aimed to prohibit public housing authorities from denying people housing if they had a criminal record.

Harris has challenged Trump’s tax cuts, calling them a “trillion-dollar tax scam,” and said that she would reverse his 2017 corporate tax cut. And she joined 41 of her Democratic colleagues last year to argue against a capital gains tax cut, calling it an “illegal action that would defy longstanding Justice Department policy.”

She has proposed additional taxes on the financial sector, calling for a new tax on banks with more than $50 billion in assets. Many of New York’s largest construction lenders would fall into that category.

But while she may take largely populist political stances, Harris’ personal taste, at least as real estate goes, runs more to the posh. She owns a 3,500-square-foot pad in the upscale Brentwood neighborhood of Los Angeles, a property that Zillow estimates is worth $4.8 million. —Georgia Kromrei


Trump repeals HUD rule in bid to win over the ’burbs

In an apparent bid to gain votes in suburban areas, President Donald Trump announced in late July that the White House repealed an Obama-era fair housing rule.

In a press release announcing the measure, the Trump administration wrote that the new rule “eliminates the excessive burden put on local communities and gets rid of the top-down approach that dictated zoning for communities.”

The decision, which was preceded by a partial rollback, dismantled what remained of an Obama-era rule requiring localities to proactively assess segregation in housing. Among the requirements, localities had to answer a checklist of nearly 100 questions. Critics of the Housing and Urban Development rule called it onerous, while proponents of the previous measure said it was already too lax.

“The Trump administration had already taken steps to suspend the rule,” said Moses Gates, the Regional Plan Association’s vice president for housing and neighborhood planning. “But this definitely halts any kind of progress that was being made.”

Under the new rule, which the Trump administration called “saving our suburbs,” localities can certify they are in compliance with fair housing law without having to provide evidence or study the effect of zoning decisions on segregation.

“It’s just instituting what is already a de facto policy,” said Gates. “[Trump] is doing it because he’s getting politically desperate and is going back to the well of what he thinks works — being more and more explicitly racist.”

The ruling is of particular importance in wealthy enclaves in places like Long Island, suburban New Jersey and Westchester, which are often resistant to large-scale affordable housing that would allow more people of color to live in largely white communities.

Craig Gurian, executive director of the Anti-Discrimination Center, which brought a 2006 lawsuit to challenge restrictive zoning in Westchester County, said Trump’s change means “the national scourge of residential segregation will continue unabated.”

“It is well to remember that the social engineering involved here was the deliberate, decades-long policy of excluding African Americans from suburban neighborhoods,” said Gurian. “Remedying that wrong is what basic justice requires.”

A multi-year investigation conducted by Newsday found that real estate agents on Long Island routinely steered Black homebuyers away from white neighborhoods.

Multiple high-level affordable housing developers declined to comment for this story.

Racial bias and a preference for single-family homes, rather than multifamily apartments, often pits communities against affordable real estate developers, who must battle exclusionary zoning laws to complete their projects.

But New York Rep. Alexandria Ocasio-Cortez is seeking to block the Trump administration’s efforts. She recently proposed a pair of amendments to an appropriations bill that would prohibit federal funds from being used in accordance with any rules proposed under Housing Secretary Ben Carson.

“We must hinder President Trump’s efforts to segregate communities and to discriminate against Black and brown homeowners and renters,” Ocasio-Cortez said in a statement. “We cannot return to the days of redlining and white flight.” —Georgia Kromrei


President’s pledge to stop evictions offers no aid to renters

President Donald Trump touted in early August that he was “going to stop” evictions by issuing a moratorium as negotiations in Congress stalled a larger federal coronavirus relief plan.

“A lot of people are going to be evicted. But I’m going to stop it, because I’ll do it myself if I have to,” Trump told reporters. “I have a lot of powers with respect to executive orders, and we’re looking at that very seriously right now.”

He repeated that promise a few days later at another White House press conference.

But the president’s executive order only directs federal agencies to “consider” an eviction ban. The order provides no additional funding to renters, and does not change the fact that rent is due and many cannot pay.

“It’s toothless, at best,” Peggy Bailey, vice president of housing policy at the Center on Budget and Policy Priorities, told CNBC.

The White House is also reportedly looking into whether Trump can unilaterally extend the enhanced unemployment benefits that were part of the federal government’s pandemic relief legislation passed in March.

Democratic and Republican leaders are currently at an impasse over a relief package. The matter of evictions and the  $600-a-week unemployment benefits are major points of disagreement. Both measures have now expired.

Trump, referring to the impasse, told reporters that Democrats are “not interested in unemployment [and] evictions.”

The Democratic-controlled House of Representatives passed a $3.5 trillion aid package in May, while the Republican-controlled Senate introduced a $1 trillion package in late July.

The House’s stimulus plan would extend the enhanced unemployment benefits created in March, allowing unemployed workers to claim an extra $600 weekly. Republican leaders have argued for a reduced supplement as low as $200 per week, claiming the extra benefits discourage workers from returning to their jobs.

On Aug. 3, Trump’s Treasury secretary, Steven Mnuchin, and Chief of Staff Mark Meadows met with House Speaker Nancy Pelosi and Senate Democratic leader Chuck Schumer for negotiations over the relief package. —Dennis Lynch

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