SPECIAL REPORT: Uncertainty Clouds Obama Re-election, Lame-Duck Session

By Philip Shea, Associate Editor

As the electorate issued a fresh verdict on the direction of the country last Tuesday, the obstacles in the path of the re-elected president and Congress could not be more daunting. Insiders within the multifamily and single-family industries remain wary of the approaching “fiscal cliff,” this in addition to a host of other challenges.

Indeed, while some have expressed cautious optimism that the Democratic president and a Republican House of Representatives may begin to compromise on certain issues facing the country, others see a continued ideological divide and marked unwillingness to make tough choices.

“I expect continued stalemate,” says Joe Greenblatt, CPM and president-elect of the Institute of Real Estate Management (IREM). “I don’t know that there exists in this government, in its current and future incarnation, the courage to confront the issues. I think there’s probably more of an inclination to defer dealing with deficits and chip away at the margins.”

Greenblatt further believes that certain policies of the administration will likely damper the recovery, stripping businesses of the leverage they need create new capital, and thus, new lines of revenue. Of particular concern are items in the tax code that give flexibility to certain companies and entrepreneurs, but which the president has expressed desire to eliminate for the sake of deficit reduction.

“There’s great concern about the mortgage interest deduction, and that mirrors concern on the commercial side about all the things that have been at issue in recent years,” adds Greennlatt. “Those would include the ‘Buffett Rule,’ the capital gains issue, the carried interest issue—a host of things that are going to have a potential chilling effect on the economy.”

The “Buffett Rule,” first proposed by President Obama in 2011, would impose a minimum 30 percent tax rate on those making more than $1 million per year, whether such be through earned income or capital gains. Currently, capital gains are taxed at a lower rate than the top bracket for earned income.

Additionally, while the administration has expressed a desire to keep the popular home mortgage interest deduction for those making less than $250,000 per year, some are worried that an elimination of such even for top-income earners could have a depressing effect on a still fledgling housing industry.

Jim Tobin, senior vice president of government affairs at the National Association of Home Builders (NAHB), believes that among the biggest challenges the president and Congress will face is an inevitability of some budget cuts across the board—known as “sequestration”—even if the larger cuts imposed by the Budget Control Act of 2011 are not fully realized.

“I think in the lame-duck with the ‘fiscal cliff,’ they are going to have to deal with sequestration in some respects,” says Tobin. “If everybody agrees to hold hands and jump over the ‘fiscal cliff,’ I do believe that HUD and the HUD programs will see some trim in the coming year.”

Tobin, however, is somewhat optimistic that eventually both sides “will find some way to get past the ‘fiscal cliff.’” The specifics of how such would be accomplished certainly remain to be seen, and while both sides are poised to lose something in the negotiations, there is a “large consensus is that driving off the fiscal cliff could send the country back into a recession.”

In the meantime, NAHB intends to make clear where it stands on the issues at stake in the negotiations, hoping for a resolution that does not incur a negative impact on the housing industry nor pose risk to a still fragile economy.

“Our goal in a lame duck is to do our best to do no harm,” adds Tobin. “We want to see sequestration resolved. We want to see the ’01 and ’03 tax cuts extended… but we don’t want to do that on the backs of housing.”

Greenblatt, however, is not confident that housing or other industries are going to come out on the other side without incurring some negative effects, and that with every day that goes by, the more uncertainty is created within the overall business community.

“Uncertainty, as we have seen, is problematic in and of itself. When you look at the macro-economy, it’s problematic,” says Greenblatt. “Against that backdrop, multifamily housing overall has been a healthy economic sector, and for existing investors and operators, I think that perhaps this uncertainty is not a good thing.”

Expect a full analysis of the election and coming congressional session in the January 2013 issue of Multi-Housing News.