The election is over. Now what?
- By Doug Bibby
- Published December 2016
Uncertainties remain, but the Republican agenda could signal some noteworthy developments for the apartment industry.
On January 20, Donald J. Trump will be sworn in as the 45th president of the United States. It will mark the conclusion of an unprecedented and unparalleled election season that also saw the Republican Party sweep both houses of Congress. With the White House under control and majorities on both sides of the Capitol, Republicans largely view the next two years as an almost once-in-a-lifetime opportunity to enact their policy agenda.
Housing was largely absent from any election-related debate, so in some respects it's too early to have a definitive understanding of what a Trump presidency exactly will mean for the apartment industry. However, given what is known about the Republican congressional agenda at large, there very well could be some noteworthy developments in the areas of regulatory reform, infrastructure and tax, with potentially significant ramifications for apartments.
Regardless, we believe that the apartment industry is very well positioned in the current political and legislative environment. NMHC worked hard over this cycle to ensure that our industry would have key relationships in place regardless of the election outcome. Moreover, in the absence of much policy action during campaign season, we spent much of 2016 educating lawmakers about our priority issues and laying the groundwork for the next Congress.
In the White House
The degree to which President-elect Trump's agenda mirrors that of Senate Majority Leader Mitch McConnell and House Speaker Paul Ryan is unclear at the moment. While the Trump campaign website provides some detail on policy goals, we've already seen changes and refinements to some of his campaign positions, and we anticipate that will continue as the administration engages with the Republican Congress.
Moreover, Trump's administration appointments to date have sent some mixed signals. The appointment of RNC Chairman Reince Preibus as White House Chief of Staff was taken as a signal to establishment Republicans that a Trump administration is prepared to work closely with congressional Republicans to enact at least some of their policy platform. But as reassuring as the Preibus appointment was to the establishment, the appointment of Steve Bannon as a top White House advisor also signaled that Trump's grassroots supporters would have a seat at the table.
At press time, appointees to key cabinet positions such as HUD Secretary and Treasury Secretary were yet unknown, though it has been reported that neurosurgeon Dr. Ben Carson has been offered the HUD role and is likely to accept.
Regardless, we suspect Trump's focus will center on a few areas: repealing and replacing the Affordable Care Act (ACA) and acting on immigration and border security, the latter of which could have ramifications for apartments, both in terms of labor and apartment demand. However, we also believe that infrastructure development and tax reform packages may be high priorities.
On Capitol Hill
Over the next four years, there is a greater chance for significant legislation and regulatory reforms than any time since early in the first Obama administration, when Democrats had control of both houses and a supermajority in the Senate. Just as that period led to the passage of the Affordable Care Act, President Obama's signatory legislative accomplishment, there is a strong possibility of President-elect Trump and a Republican-held Congress will have the opportunity to pass similarly momentous legislation.
While there is still some uncertainty around which lawmakers will be chairing key congressional committees, we expect that a Republican-controlled House and Senate will probably move quickly to roll back the regulatory infrastructure put in place during the Obama administration. This could mean easing on any number of fronts, including the Environmental Protection Agency's Waters of the United States (WOTUS) rule, the Department of Labor's final rule on overtime pay or many of the Dodd-Frank financial regulations-all of which could potentially benefit apartment firms. Similarly, Congress could address resolving the GSEs' conservatorship, which could impact capital availability.
Another area of opportunity could be related to infrastructure, which was a topic of debate during the election. NMHC/NAA have already begun working with lawmakers to broaden the issue, making the case that housing is critical infrastructure and, therefore, incentives for housing production should be included in any legislation as a strategy to address the nation's worsening housing affordability crisis.
However, a key part of the Republican agenda for the 115th Congress will be attempting to overhaul the nation's overly complex tax code. Last June, House Republicans released a blueprint for tax reform that is expected to launch the starting point of next year's debate. The proposal would significantly alter the taxation of multifamily real estate by reducing the top tax rate on pass-through businesses to 25 percent; enabling all investment except for land to be immediately deducted from income as opposed to depreciated over time; and eliminating the deductibility of business interest.
While the House Republican blueprint is a starting point that will inevitably undergo change, NMHC/NAA will advocate for reform that doesn't unfairly burden apartment owners and renters relative to other asset classes. Specifically, we will urge Congress to preserve the pass-through tax structure, retain sensible cost recovery rules and preserve the Low-Income Housing Tax Credit.
While the Republican retention of both houses of Congress suggests the possibility of a lot of legislative movement to come, the outcomes remain in question. Not only are there competing visions for what things like tax reform might look like, but the party's slim majorities could provide some headwinds. For the party to advance its agenda, cooperation across the aisle will still be critical.
One element of President-elect Trump's tax plan that has yet to receive much coverage would actually do much to help put renting on more equal footing with homeownership. Namely, the plan calls for more than doubling the value of the standard deduction, which could reduce the value of the mortgage interest deduction-a key incentive for homeownership-because more people would simply take the standard deduction.
The 2016 election season was a watershed moment for the country and modern politics. As such, the next six months have the potential to be among the most momentous in recent political history, and the apartment industry is likely to feel some effects from the Republican agenda as it takes shape, both for the better and worse.
NMHC will continue to aggressively advocate on behalf of the apartment industry over the next few months and will work with the Trump administration as well as lawmakers in Congress to implement policies that support the unique needs of the multifamily industry as we work to provide homes for nearly 39 million Americans.