Editor’s note: This story was first published in The Real Deal’s August issue. A lot has happened in the election run up since, but the stakes remain the same for real estate.
The June debate between President Joe Biden and former President Donald Trump was memorable for a number of reasons, but real estate policy was not one of them.
Biden, however, briefly mentioned a concept denounced by landlords and economists, and hotly debated in blue states.
“We’re going to make sure we cap rents, so corporate greed can’t take over,” he said.
Three weeks later, Biden elaborated, proposing a temporary form of national rent control.
The announcement drew the ire of real estate groups and praise from tenant advocates, further widening the gap between how Biden and Trump intended to address the nationwide housing shortage.
Blink and you might miss them, but there are real estate platforms in this election. Before stepping aside, Biden laid out a number of specific proposals aimed at increasing housing construction and ramping up tenant protections. Trump’s agenda largely focuses on encouraging homeownership.
The presumptive Democratic nominee, Vice President Kamala Harris, as of press time has not announced her own policy agenda but would likely continue with the priorities of the current administration, at least in the immediate future.
“Every American deserves affordable housing — yet the cost is too high in communities across our nation,” Harris posted on social media platform X when the planned rent cap was announced. “That is why our Administration just took another step to lower costs by announcing actions to limit rent increases and build more affordable homes.”
Both Trump and the Biden administration have made clear where they stand on key tax issues that affect the real estate industry. Trump is seeking to expand a number of policies in his 2017 tax law that are set to expire at the end of 2025. Biden, for his part, said he planned to reverse many components of the law and pitched increasing taxes on corporations.
“Everything is in some ways on the chopping block,” John Lettieri, co-founder of the bipartisan think tank Economic Innovation Group, said. “It’s going to be an interesting time.”
Drawing a line in the sand
In March, the Biden administration proposed a limit to rent increases at projects that are financed by low-income housing tax credits.
His latest plan took this concept to a broader group: Annual rent increases would be capped at 5 percent for landlords who own more than 50 units. The limit would not apply to new construction and would only last for two years. Landlords who do not abide by the cap would lose out on a tax benefit known as accelerated depreciation.
The proposal would almost certainly face an uphill battle in Congress, and landlord groups derided it as “political posturing” and an economically unsound way to address the nation’s housing shortage.
“Federal economic mandates that override state and local control are a recipe for inevitable and widespread market disaster,” said Joseph Strasburg, president of the Rent Stabilization Association in New York.
Tenant advocacy group Housing Justice for All applauded the proposal and underscored the significance of a sitting president calling for a nationwide form of rent control.
As uneasy as landlords feel about temporary rent control, they may see a greater danger in how a Trump victory would affect local politics. Many have noted that Trump’s presidency may have helped Democrats in New York take control of the state Senate in 2018 and push through pro-tenant reforms to the state’s rent stabilization law. Socialist candidates also gained more seats at the state and city levels.
Biden also pitched a series of changes aimed at encouraging more housing construction, with a goal of building 2 million units over the next decade. The proposal was framed as the Biden-Harris Housing Plan; Harris would presumably continue pushing for it.
The Republican Party released Trump’s agenda in July. The 16-page document is short on specifics but indicates that a Trump administration would “reduce mortgage rates by slashing inflation” and provide tax incentives to promote homeownership.
The document also calls for revoking China’s “most favored nation” status for trade, in the service of preventing “China from buying American Real Estate and Industries.”
A taxing time
During the June debate, Trump briefly touted his Opportunity Zone program, which drew massive interest from the industry even as it drew criticism for potentially falling short of its goals.
“It’s one of the most successful economic development acts ever in the country, Opportunity Zones,” Trump said during the debate. He went on to say that Black Americans were the “biggest beneficiaries” of the program.
The jury is still out on the program’s long-term impact on communities. The program allows developers to defer capital gains taxes if they invest in one of 8,700-plus areas designated as distressed. It attracted criticism for how it selected these areas and stirred fears of luxury development. Studies of the program, however, have shown that it has encouraged development in communities at a much faster clip than previous federal programs with similar goals.
A Trump presidency makes an expansion or even a permanent version of the program more likely. His agenda calls for making the 2017 tax provisions permanent.
Trump also wants to double the standard deduction, while presumably permanently capping itemized deductions for state and local taxes, or SALT. The SALT cap included in the 2017 law disproportionately hit high-cost, high-tax blue states such as New York and New Jersey, with industry professionals worrying about the impact on residential markets.
“I think that for our industry, anyone supporting the Republicans must have a short memory because when Trump first came to power, and he had people in the House and Senate, he passed a tax bill that was designed to harm New Yorkers,” said developer Jeff Gural, who had supported Biden’s campaign but later urged the president to step aside alongside Democratic peers.
Biden’s Build Back Better plan, which stalled in Congress, sought to temporarily raise the SALT cap and included significant changes to the low-income housing tax credit program.
The president has pushed to increase the corporate tax rate to 28 percent from 21 percent and to end special treatment for pass-through entities, including LLCs and S corporations. He also has long wanted to restrict the 1031 tax exchange program, which allows investors to defer taxes by rolling their capital gains on recent property sales into new properties. Most recently, Biden pitched limiting the deferral of such gains to $500,000 for each taxpayer.
Alfonso Costa Jr., who served as deputy chief of staff and Opportunity Zones lead for the Department of Housing and Urban Development during the Trump administration, said the Opportunity Zone program should be extended at least another five years to properly assess its impact.
“Given the onset of Covid-19 in 2020, followed by a quick rise in construction costs and a challenging high interest rate environment, one could argue that there needs to be more time to let the program be implemented in a ‘normal environment,’” he said in an email.
Costa, who now is the chief investment officer for Florida-based developer Falcone Group, said he would like to see the next president use HUD to incentivize states to establish programs like Florida’s Live Local Act, which offers density bonuses and other perks to developers who incorporate workforce housing in their projects.
Lettieri thinks that whoever wins in November, Opportunity Zones are here to stay, even if the program is reformed as has been proposed in bipartisan legislation. Change within these communities, however, will take time.
“These things take a generation to play out,” he said, noting that communities are seeking to reverse decades of disinvestment. “These communities spent, in many cases, decades digging themselves in a hole.”