There is a proverb, “May you live in a time of change.” It appears that with the new administration not only are we living in a time of change, but also one of break-neck speed without precedent or predictability.
If our common business and professional interest is the ownership, development, financing, management, and disposition of real estate, then undoubtedly our interests are being impacted by the new administration in Washington. One of our most pressing tasks, therefore, is to try to keep track of the changes, make sense of them, and figure out what is next, both short term and long term.
Anyone who claims they have an accurate crystal ball is not dealing with reality. I will not even try. But what we can do is try to make sense of the situation. To that end, attached is a type of scorecard and checklist I have developed. The purposes are to:
- List all of the major factors that impact the residential sector;
- Allow us to try to keep track of which factors have been, or are likely to be, impacted by Trump administration policies, orders, and actions; and
- As best we can, characterize each change as positive or negative, or unknown at present
Hopefully, this exercise will give us a framework for tracking, analysis, and prediction. The format below is (1) the factor; (2) aspects of the real estate sector that are impacted by that factor; and (3) evaluation – so far! – of the Trump effect.
Factor 1: Cost of building materials:
Examples
- Impact of tariffs (US and reciprocal) on lumber, steel, aluminum, and other building products
- Supply chain uncertainty that results in scarcity and price increases
- Impact of tariffs on manufacturing moving back to the US from other countries
Evaluation
Anyone disagree that this is The Big Concern for the residential sector?
Tariffs are complicated in action: when and how they are imposed, processed, and collected is a difficult task that varies with the countries involved, currency exchanges, and administrative handling. We must also ask why tariffs are being imposed? Stop the flow of fentanyl? Promote better border security? Bring more manufacturing back to the U.S? Cure unsustainable/”unfair” trade balances?
With tariffs looming, U.S. importers of building materials are stocking up before tariffs begin, and hoping their supplies will still be there when tariffs are lifted.
The underlying economic impact concern is that inflation “cascades” – it ripples through the economy – and once that starts, it can’t be switched off.
Fair question: is the administration bluffing about tariffs and new trade deals with Mexico, Canada, China and Europe will soon emerge?
Factor 2: Cost and availability of labor:
Examples
- Impact of federal immigration policies on availability of skilled and manual labor
- Cuts to vocational training programs?
- Regulation of unions
- NLRB oversight and enforcement
Evaluation
How big a problem is this in New England? More a problem in West and Southwest? Regionally, the bigger problem appears to be vocational training. Not a major problem?
Factor 3: Federal Reserve and US Treasury actions affecting interest rates:
Examples
- Home mortgages
- Refinancing
- Construction and permanent lending
Evaluation
If inflation surges due to tariffs, the Federal Reserve needs to keep interest rates high (though Ten-Year U.S. Treasury yields have dropped recently). Are high interest rates a potentially significant consequence of tariffs? Probably.
Factor 4: Cost of land:
- Other than interest rates, not obvious that administration policies will affect this?
Factor 5: Infrastructure:
Examples
- Financing
- Maintenance
- Expansion
- Environmental regulation barriers
Evaluation
A perennial problem, that existed pre-Trump, but note how one Trump administration action affects others: recently, a bipartisan group of senators proposed streamlining infrastructure permitting, but Sen. Whitehouse, Rhode Island, threatened to block unless the federal spending freeze is repealed.
Factor 6: Property insurance – impact on availability of coverage and premiums:
Examples
- Climate change
- Fires and floods
- Hurricanes
- FEMA flood mapping
Evaluation
Huge problem that has emerged in recent years. Insurance increases are generally a pass-through to consumers. Administration abandoning climate change programs. Existing problem, but will administration climate change policies make lack of property insurance worse?
Factor 7: Federal environmental regulation:
Examples
- Federal wetlands jurisdiction – revised definition of “waters of the United States”
- EPA and Army Corps permit processing
- Relaxation of Clean Air Act regulations
- Protection of gas appliances (no bans or impact fees)
- Withdrawal from the Paris Accords
Evaluation
In February, HUD Secretary Turner promised fewer regulations, quicker permitting. EPA administration Zeldin announced widespread deregulation in early March, including federal Clean Water Act jurisdiction. Administration opposes limits or bans on fossil fuels use. These changes appear to be a positive for builders, albeit at cost to environmental quality.
Factor 8: Federal tax policy and management:
Examples
- Mortgage interest deduction
- Extension of 2017 Trump tax cuts
- Revision of 2017 SALT (State and Local Tax) deduction
- Minimum wage
Evaluation
Likely: no change to mortgage deduction; 2017 tax cut will be extended; SALT limit will be modified; no change to minimum wage. Minimal net effective on residential sector.
Factor 9: Federal energy regulation/cost of energy:
Examples
- Drilling for oil and gas on federal land
- More supply, price reductions for gasoline and electricity?
- Reduction of Department of Energy work force
Evaluation
Very hard to predict; impacted by worldwide factors and politics.
Factor 10: State and local land use regulation:
Evaluation
- Administration not likely to impact/change
Factor 11: Rent subsidies/vouchers, and Fair Housing Act administration and enforcement:
Evaluation
- Will be curtailed; millions of vouchers rescinded would reshape low-income housing
- Residential sector general by complies with anti-discrimination law
Factor 12: Federal safety regulations (OSHA):
Example
- Part of federal agency rollback, disruption?
Evaluation
The administration may rollback workplace safety regulation, and cut jobs at OSHA.
Factor 13: Federal agency administration:
Examples
- Workforce reduction
- Spending freezes
- Administrative inaction while awaiting White House or DOGE direction
- Disruption of agency work; loss of experienced employees
Evaluation
Example: Army Corps. of Engineer/EPA frozen while new directions put in place? Too early to tell impacts but agency disruption, uncertainty, paralysis do not benefit residential sector.
Factor 14: Building and energy codes:
Example
- Repeal of energy efficiency standards
Evaluation
Repeal already underway. This will give builders greater choices, though at risk of less energy efficiency.
Factor 15: Impact fees:
Evaluation
- State level issue – no federal impact
Factor 16. Federal housing programs:
Examples
- Low income housing tax credit allocations: likely to be reduced?
- Privatization of Fannie Mae and Freddie Mac; secondary mortgage market
Evaluation
HUD likely to shrink LIHTC and Section 8 and federal housing programs, affecting millions. Privatization of Fannie Mae and Freddie Mac (administer secondary mortgage market) was intended in 2008 to be a temporary federal takeover, but is there a risk to mortgage market in turning it back to a private agency?
Overall Assessment:
Effects from Trump Administration Actions on the Residential Sector
- Tariffs, inflation, interest rates will substantially adversely impact building material costs, construction costs, borrowing costs
- Rollback of climate change programs, impact on property insurance will make residential construction and maintenance more difficult
- Potentially large impact from reduction of low income tax credit and rental subsidy programs
- Easier federal permitting
- Fewer environmental regulations and restrictions
