Risks and opportunities for real estate in Trump’s second term

Voters delivered a Republican trifecta in Washington, DC, but a razor-thin majority in the House of Representatives and the filibuster in the Senate will place some limits on what is legislatively possible for President Donald Trump and the Republican Congress. The president and financial regulators will have greater ability to deregulate, although recent Supreme Court rulings could curb these efforts to some extent.

Against this backdrop, we see the following risks and opportunities for the multifamily housing sector.

• Tax legislation: The House and Senate can adopt tax policy based on simple majorities, bypassing the Senate’s 60-vote threshold. The expiration of several provisions of the 2017 Tax Cuts and Jobs Act (TCJA) means that tax policy will be a top priority for Congress.
• Housing finance reform: The first Trump administration made ending the conservatorship of Fannie Mae and Freddie Mac (the GSEs) a priority, and we expect a renewed effort.
• Regulatory cleanup: The market, including the CRE industry, is looking forward to tailored regulations and a clearer regulatory process. Greater certainty around the regulatory landscape will help companies make more rational investments. However, some market participants are concerned that tariffs and the possible deportation of millions of people in the construction sector could increase costs and delay the hoped-for expansion of housing supply.
• Dual housing priorities: Democrats and Republicans agree that housing is too expensive for many Americans. In fact, there is broad agreement that increasing the supply of housing is the best solution. However, policy solutions between the parties are not necessarily aligned.

Tax law

Congress will use the budget reconciliation process to address expiring TCJA provisions and make other tax changes. Most of the expiring provisions relate to individual income taxes, but the 20% deduction on qualified business income for passthrough businesses is an important provision that is about to expire. Many in the real estate community, and many businesses across the country, are organized as passthroughs, and 199A’s help has created greater parity with businesses. [that saw a major tax reduction in TCJA].

While we certainly don’t expect Republicans to propose tax increases, lawmakers remain concerned about federal debt and deficits. And if certain tax priorities have greater political momentum (no tax on tips, lower business rates, etc.), negotiators may try to “offset” some cuts by eliminating deductions or other forms of favorable tax treatment. So far, real estate and housing have not been particularly addressed, but the sector remains vigilant as the legislative sausage rolls out.

Housing finance reform

The Federal Housing Finance Agency (FHFA) assumed the role of conservator of Fannie Mae and Freddie Mac on September 6, 2008. While regulatory changes have been made to some key elements of the structure, there is still no clear end date or plan for release. the housing agencies from the conservatory. The first Trump administration prioritized an exit from the GSE’s conservatorship, which began with a White House memo in March 2019 directing the Treasury Department to develop a housing finance reform plan. We expect Trump’s FHFA director to prioritize an exit, and while legislative action is possible, it would be an uphill battle.

Regulatory

We expect a financial regulatory regime that focuses strongly on deregulation. While Trump has embraced populist moves, including the possible imposition of tariffs on key trading partners, he is leaning toward leaders who will bring a sense of normalcy and more traditional Republican values ​​to financial regulation. Since he tends to treat market performance as a daily report, he tries to avoid chaos in the financial markets, unlike other elements of his perceived directorship.

As widely expected, President-elect Trump’s choices to lead financial regulators are largely in line with traditional Republican priorities. His appointment of former Securities and Exchange Commissioner (SEC) Paul Atkins to lead the SEC is a good example of seeking people with relevant experience in economic and financial policy.

Three key regulatory areas of focus for CRE financing include the status of the proposed Basel Capital Endgame, the CFPB overreach, and the SEC’s final climate disclosure requirements and other regulatory activities.

Proposed Basel Capital Endgame

The Basel Capital Endgame, proposed in July 2023, received an unprecedented backlash from both the banking industry and senior Republican policymakers, given the proposed 19% jump in required capital at the largest banks. Democratic lawmakers also oppose much higher capital requirements for home mortgages and funding for renewable energy tax credits.

From a CRE perspective, it was more of a mixed bag. Stricter capital requirements were introduced for LTV-based CRE loans, which would have reduced capital requirements overall. However, punitive treatment of securitization and mark-up lines and other unreasonable measures such as universal cross-default provisions would have significantly increased financing costs in an already difficult financing environment.

In September, Federal Reserve Supervisory Vice Chairman Michael Barr outlined recommendations he would make for a reproposal that would significantly limit proposed capital increases for the larger banks. However, disagreements between the various agencies prevented the reproposal from going ahead. After the election, while testifying at an oversight meeting before the House Financial Services Committee, Barr stated that the Fed would not move forward with Basel until the banking agency’s new leaders were installed. Trump will be able to appoint a new Office of the Comptroller of the currency (OCC) Comptroller and chairman of the Federal Deposit Insurance Corporation (FDIC).

For now, the Basel Endgame is dead, but it can be brought back to life with less onerous requirements. However, a reproposal and final rulemaking would likely take several months, if not more than a year.

CFPB overage

An easier way to reduce regulatory overshoot would be to eliminate the Consumer Financial Protection Bureau’s (CFPB) multifamily reporting requirements under the Home Mortgage Disclosure Act (HMDA). The HMDA reporting requirements exist to collect home loan origination data and detect potential discrimination. However, in 2015, despite opposition from CREFC and other multifamily housing advocates over the significant differences between financing for single-family and multifamily housing, the CFPB expanded the HMDA requirements to include multifamily housing.

The CFPB used a similar approach to the 1071 Small Business Lending Data reporting. Although the CFPB exempted multifamily loans, they required other CRE mortgages below a certain threshold to be reported as well. Once again, the CFPB has lumped together very different financing products into the same reporting regime.

After half a dozen years of collecting this information, the CFPB has never published or cited the information in their HMDA analyses. This should be an easy policy win: stop mandating the collection of data that no one uses.

The CRE finance industry, not unlike the financial markets in general, viewed some of the SEC’s activities under current Chairman Gary Gensler as solutions seeking to solve problems or developing new requirements outside the standard regulatory process. Some of Gensler’s most controversial policies, such as the climate disclosure rule, are currently working through the courts, but a new chairman could decide to stay the lawsuit and repropose the rules, pursue settlements, or simply decide to no longer defend the rule in the fight against climate change. court. We could also see the new Republican-controlled Congress use the Congressional Review Act to overturn the SEC’s most recently adopted rules.

However, it is important to note that, at least in the case of climate disclosure requirements, momentum may continue in at least a few key states, including California. A stricter climate disclosure law just survived its first passage through the courts. Given the low threshold for companies to have to comply with California’s requirements, phasing out regulations at the federal level may not provide the expected reprieve.

Sairah Burki is the Managing Director of the CRE Finance Council. David McCarthy is Managing Director and Head of Legislative Affairs at the CRE Finance Council.

This column does not necessarily reflect the opinion of HousingWire’s editorial staff and its owners.

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