What the Presidential Election Means for Multifamily
- Oct 02, 2020
With the presidential election drawing closer and the race between President Donald Trump and Democratic candidate Joe Biden getting tighter, some of the starkest differences between the two men can be found in their housing policies.
Former Vice President Biden issued a wide-ranging plan that would invest up to $640 billion in federal funds to improve public housing and provide various forms of rental assistance to a larger number of Americans, including issuing Section 8 housing vouchers to every eligible family and increasing funding to make that happen.
While Trump has not released campaign proposals, the fiscal 2021 budget proposed for the Department of Housing & Urban Development doesn’t provide funding for capital projects in public housing properties, seeks a 10 percent cut to public housing operating budgets and cuts Section 8 vouchers by $5 billion.
Cindy Chetti, senior vice president, government affairs, at the National Multifamily Housing Council, said the association has tried to work with the Trump administration, but there is “not much appetite right now to do legislative work on Section 8 reform.”
“We certainly have been very focused on it and want to do what we can to streamline the program and get more participation,” Chetti said.
Biden is also proposing a $20 billion increase for the national Housing Trust Fund to incentivize states, municipalities and developers to build more affordable housing. The Trump administration’s proposed 2021 HUD budget would eliminate the HTF. It would also cut Community Development Block Grants, which Biden wants to boost by $10 billion, and the HOME Investments Partnership program.
Biden is also looking to expand the Low Income Housing Tax Credit program by $10 billion, noted Matthew Berger, NMHC vice president of Tax.
The candidates also differ on tax policy and possible reforms that could impact the multifamily housing industry.
Ken Rosen, chairman of Rosen Consulting Group and the Fisher Center for Real Estate and Urban Economics at the Haas School of Business at the University of California, Berkeley, said Biden has proposed eliminating the 1031 exchange to pay for his $775 billion child care and elder care plan. Used to defer capital gains, Trump’s 2017 Tax Cuts and Jobs Act saved the tax exchange utilized for decades by real estate investors.
“Raising the capital gains (tax rate) and eliminating the 1031 would create a 20 percent decline in commercial real estate values. Real estate would be subject to the capital gains tax at a very high rate,” Rosen said.
Biden’s proposed change on capital gains could depress deal activity, Berger noted, especially if linked with loss of the 1031 exchange because investors would retain assets longer.
NMHC and the National Apartment Association believe that carried interest should be treated as a long-term capital gain if the underlying asset is held for at least one year. The organizations strongly opposed extending the holding period to three years as part of tax reform legislation enacted in 2017 but are pleased that proposed regulations released in July 2020 exclude so-called Section 1231 gains from the extended holding period.
While Trump has not released tax policy proposals as part of his re-election campaign, he has pointed to the TCJA as a signature piece of legislation. He has talked in general terms on the campaign trail about initiating more relief for lower-income and middle-income taxpayers but not provided details.
The TCJA also introduced Opportunity Zones, which encourage private development in low-income areas with the deferment of capital gains and reduction of tax liabilities. While critics say there has only been about $10 billion invested and the projects have not improved economic conditions for residents, the Trump administration claims that Qualified Opportunity Funds raised $75 billion by the end of 2019. In late August, Trump issued an executive order directing more federal agencies move their offices into opportunity zones and later said the program would be expanded but did not offer specifics.
Biden and Democrats have increasingly called for changes to make the program more transparent, including requiring a community benefit plan for each project.
Jeffrey DeBoer, president & CEO of the Real Estate Roundtable, said he expects a review and changes no matter which administration is in charge next year but doubts Congress would repeal it.
“The issue will boil down to be is there an opportunity within the opportunity zone for minorities and women-owned businesses for them to participate in this. That’s certainly a legitimate debate to have,” DeBoer said.
GSE, Housing Finance Reform
The Trump administration last year pushed for the GSEs’ conservatorship to come to an end and for Fannie Mae and Freddie Mac to become a quasi-public company. That has been FHFA Director Mark Calabria’s goal, and he says it will take until 2024 for him to complete his plan.
But Mike Flood, senior vice president, commercial/multifamily policy and member engagement at the Mortgage Bankers Association, questioned whether Federal Housing Finance Agency Director Mark Calabria would stay under a Biden administration or if Biden will continue with the privatization plan.
“Would that change under Biden?” Flood asked. “They might have a different philosophy.”
Chetti also raised the issue of what happens to housing finance reform if there is a possible change in Senate leadership.
“If the GOP retains the Senate, there are some members that are very much focused on housing financing reform and would like to see that job get done,” Chetti said.
Rental Assistance and Eviction Moratoriums
On Aug. 1, Biden called for Congress to prevent evictions and help struggling landlords by enacting “a broad emergency housing support program.”
A month later, Trump signed an executive order enabling the Centers for Disease Control and Prevention to use its authority to halt evictions through the end of 2020 to slow spread of COVID-19. Multifamily and commercial real estate industry officials are pushing for assistance for renters impacted by the pandemic because they are worried about accrued rent.
“An eviction moratorium is not a long-term solution. It kicks the can down the road,” said Chetti. “We’re very supportive of rental assistance for folks that are experiencing hard times and hardships.”
Diane Yentel, president & CEO of the National Low Income Housing Coalition, said the order only provides temporary relief. “While an eviction moratorium is essential, it is a half-measure that extends a financial cliff to renters to fall off when the moratorium expires and back rent is owed,” she tweeted.