The Landlord Lens - How a 2024 Trump Presidency Could Shape the Housing Market

Episode Date: October 29, 2024

Learn how a potential 2024 Trump presidency could impact the U.S. housing market. From interest rates to inflation, discover the factors that might shape real estate prices, mortgage rates, and the overall market. #election2024 #electionnews #kamalaharris #donaldtrump Disclaimer:TurboTenant is not endorsing a candidate. We created this and our accompanying Harris video purely for educational purposes, and to explore how our 2024 presidential candidates may affect things for landlords.Sources1. https://www.nasdaq.com/articles/im-ec...2. https://www.bankrate.com/mortgages/ha...3. https://finance.yahoo.com/news/trump-...4. https://www.redfin.com/news/potential...5. economic_impact_of_a_trump_reelection_on_real  6. https://taxfoundation.org/research/al...7. https://www.americanprogress.org/arti...8. https://itep.org/amazon-avoids-more-t...9. https://www.policygenius.com/taxes/wh...

I'm Krista and this is Jonathan and we're here to help you be a better level. So, politics, right? Politics. We are just a few weeks away from the American presidential election. Hopefully this isn't the first time you're hearing about it. I highly doubt it is. It's been a doozy. So pretty much everyone agrees with the economy and housing are some of the most important topics for this election cycle.

So we have decided to cover our two presidential candidates and what policies they've put forward, how they would affect housing market and real estate investors in general. So I do want to say we made another episode. This one will cover the potential second Trump presidency. We already made another one that is about a potential Harris presidency. And a big disclaimer up top, Turbotent is not endorsing a candidate. We created this in our accompanying Harris video purely for educational purposes and to explore how our presidential candidates would affect housing. So with that out of the way, shall we jump in? Let's jump right into it.

Something that has been an increasingly hot topic are interest rates. How does Trump talk about interest rates? Yes, Trump talks a lot about interest rates. He has said that he will lower interest rates in his second term. He will keep them low. He likes to tout how healthy and how vibrant the housing market was during his first presidency, which is true. It was an excellent housing market.

The thing about a president saying that they, will lower interest rates is that they don't actually have influence over that. So the Federal Reserve is who decides what the interest rates will be. They base that on a whole bunch of economic data. And the whole point there is to stay politically independent. So the president does not actually preside over the Federal Reserve. Trump has put forth a few concepts of plans for how he would alter the Fed structure and actually make it less independent. If he he were able to do that. If he does do that, then absolutely he could directly impact interest rates. However, doing that would change a lot with how financial markets are set up across the country and,

frankly, across the world. So even though that would make real estate boom, it could have some pretty severe unintended consequences as well. So it's also important to note that lower interest rates won't suddenly solve the housing crisis. I believe there's an estimate that were like 3.8 million housing units short in America right now. That's a lot of housing. Lower interest rates are going to make 3.8 million housing units appear. So obviously there is construction that also needs to happen. There are a lot of people, primary homebuyers, as well as real estate investors who've been waiting for rates to come down. They have started to as of these last few weeks, which is really nice. But we're a long way away from those 3% rates that we saw back in 2020, 2021. And as those rates continue

to hopefully come down, the demand for houses will include. which will lead to more competition and probably higher home prices as well. All right. So that is Trump's plan for interest rates. Could he do it? No, not right now. As I said, the president is separate from the Federal Reserve. They cannot say, hey, Fed, lower those rates. They don't actually have that power. They could, of course, say in interviews that they're going to do it and try to put some pressure on via media, which Trump has certainly done. But the Fed, as of right now, is politically independent. Well said.

Okay, jumping right into a super sexy topic. Yeah. Tariffs. Teriffs. Yes, tariffs, tariffs, tariffs. Trump has also said a lot about tariffs. So he very famously, in his first presidency, put a bunch of tariffs in place, particularly with China. So the idea behind tariffs is anything coming into America from, in this case, China, would have increased prices. would have some tariffs on them. The hope with any tariff is that it will encourage the market to

start buying from other areas or maybe even producing here in America, even though we don't do a whole lot of that. Maybe that's for another episode. A lot of those tariffs that Trump put in place are still in place. Biden has left them there. And all indications of a potential Harris presidency say that they will likely remain. Trump has said that in a second term, he would actually extend those tariffs, including a 10 to 20% tax on all imports, all imports, and up to 60% on imports from China. That is huge. That would affect the price of a lot of things. We get a lot from China still. And it would more importantly really affect housing due to the building materials coming into America from other countries. The way the tariffs work, when you put a tariff in place,

it directly increases the price of that thing. And that then leads to, Dang. Yeah. Okay. So could he feasibly extend these tariffs? Absolutely. And the overall effect of it would be likely? Probably increased inflation, but almost certainly higher building costs.

It would really eat into the growth of renewable energy because some things like solar panels almost exclusively come from overseas. So those prices would all likely go up. I mean, at the end of the day, high tariffs mean higher prices. And those would be passed on to consumers. Dang. And I could see that negatively impacting building more housing, which we desperately need. Yeah. Yeah.

And, of course, looking beyond the housing market, it would also affect buying, you know, electronics or even some food that's imported from other countries. So, yeah. We've talked about some pretty interesting things so far. Now let's get into something that is always spicy. What is Trump's tax plan? Oh, taxes. Okay, so one of the biggest pieces of legislation that went into effect during Trump's first presidency was the Tax Cuts and Jobs Act of 2017, known as the TCJA. So that is what I will call it.

This one was really big. It changed a lot of ways that taxes work for individual taxpayers, but also, in this part, is really important, for corporations. So this led to an increase in after-tax income for a lot of individuals and businesses, which in turn led to an increase in home purchases. and investments in real estate. You know, to put it simply, if you can cut taxes for the average American, they are going to save more money, and they will use that on large purchases like buying a home. That's great.

This is how you stimulate the economy in theory, right? The TCJA also created a lower corporate tax rate and a provision creating what's called opportunity zones to encourage investment in lower income areas. So a ripple effect of these changes in tax policy could be a rise in, instruction, more housing supply, lower home prices. These are all good things. We like these things. Or, depending on how they're enacted, it could actually lead to the opposite.

It could lead homebuyers to scale back their activity or pass those higher costs onto homebuyers. So, I know that's not very helpful. For a hint on which way it looks like it will go, we can look at what did TCJA do. It was enacted in 2017. It's now 2024. We've had a few years of seeing what that has done. So it was a $1.9 trillion tax bill. That's a really big number. Since it's been several years, we can definitively say that corporations and not workers were actually the big winners here because the corporate rate was cut by 40%. Wow. That's a lot.

I would like my taxes to be cut by 40%. Would love that, actually. That would be great. So corporations paid less in taxes, made more in profits, and largely did not pass those savings on to their workers, as was the intention. Obviously, that is what everyone was hoping with the tax bill. So that means that those workers did not make any more substantial money that could be invested in housing even while the house prices then went up. So to illustrate this point, let's look at Amazon. Amazon, over a four-year period, 2018 to 2021, made $78 billion in U.S. income, and they paid just 5.1% tax.

That is very low. For individual taxpayers, the TCJA didn't actually affect very much. In fact, according to policy genius.com, the average tax refund in our home state of Colorado right here went up by $2. Wow. From 2017 to 2018. Do you remember seeing that new tax bill? I tried not to spend it all at once. It was really hard.

So the biggest winners were taxpayers in Florida, where the average refund went up by $56. So fair to say, it really didn't affect individual taxpayers that much. Okay. Wow. So with all this in mind, Could he do this again with taxes? Yes, absolutely. And what do you anticipate the impact being?

If average Americans are tax less, it would definitely ignite the housing market and the economy in general. It would certainly stimulate everything there. But if new tax policies are put in place and if the TCJA is renewed because it is expiring, it's set to expire soon, if it's renewed in the same fashion, then corporations will win big and they likely will not reward their workers. So expect more of the same with luxury homes being built instead of starter homes, a constrained housing supply, and higher housing costs. I see. Okay. And this is a beautiful segue into the housing market as a whole. So prices and supply. What has Trump said about that sector? Yes. So a lot of what he said comes right off of where we started this conversation with the lower interest rates. So if we have lower interest rates, the housing market will become more competitive. everyone wants lower interest rates. That's good. We all like that. And that's already started to happen, right? That will increase competition, also housing prices, and also, hopefully, will lead to an increase in available supply, because people will actually be moving again, whereas the last few years with high rates, a lot of people are staying set. But the cost of houses today are the result of a lot of very complicated and long-lasting factors. In fact, a lot of what we're seeing with the housing supply is still an effect of the cost of the the 2008 housing crisis. So that's crazy. That was a long time ago now. But building a house takes a

lot of time. And building, you know, 3.8 million houses takes a really long time. So what has happened is builders have really prioritized building luxury homes because those give a better ROI. They're not building so many of those starter homes. And in many markets, including right here in Denver, the starter homes are really what we need. So of course, we also had rising material costs. We've had construction labor shortages. Realistically, none of these are problems that can be solved overnight by anyone, not even in a four-year term, no matter what they say. But let's dig a little deeper.

So things that Trump has actually proposed that would help housing supply. Opening swaths of federal land for housing development, that would obviously leave to more construction, which would help that supply issue. He's also said he will reduce regulatory barriers to building new housing. And this one is really big, Because the National Association of Home Builders estimates that government-imposed regulations account for 24%

of the cost of building a new home. Well, that's a lot. If we could lower that, even to, you know, 10%? That would be huge. And those savings could hopefully be passed on to the people actually buying the homes. But most of those pesky regulations are actually at a local level, and they're not easily influenced by the federal government without some sort of far-reaching federal override.

And as I've said before, changing the balance of power between the executive branch and other aspects of the government could have some unintended consequences. Sounds like it. Okay. So regarding the housing market, pricing, and supply, could Trump actually do it? So he could open swaths of federal land. Yes. He would have a harder time reducing those regulatory barriers because, again, those are on the local level. So not really within the purview of the executive branch. So yes and no. Lovely. A clear cut is. Here's something else that's really clear cut, really easy.

Yes. Inflation. What is Trump saying about that? Let's solve inflation. You know, a theme here with the policies that Trump has put forth is really deregulation. He has gone in his first term. He really went after taking out a lot of regulation that had been in place. And a side effect of deregulation and tax cuts is a potential increase in inflation. Right when it's, feels like we finally crawled out of that inflationary hole that we had been in the last few years. In his first term, Trump focused a lot on Fannie Mae and Freddie Mac. Those are the two government sponsored enterprises that really underpin the entire U.S. housing finance system. After the 2008 housing crisis, Fannie and Freddie were placed under government conservatorship to help stabilize the market. And that means basically they have government backing. So that's about as stable as you can get in this country. It's kind of like having FDIC insurance on your bank account, which we all like. That is a nice thing to have.

Big fan. Big fan. Trump has actually proposed taking Fannie and Freddie out of conservatorship and privatizing them. So that could lead to more competition in the mortgage market. Some economists actually argue it could raise mortgage costs since guaranteeing mortgages without the power of the federal government would be both expensive and really complicated. And there was a 2015 study by Moody's that found that privatizing Fannie and Freddie would add approximately $1,200 a year to the cost of a typical mortgage.

Wow. Okay. So can Trump control inflation? No. Not really. Another aspect that many Americans are concerned about getting under control or at least better understanding is immigration. Yeah. So I'm curious what are Trump's thoughts on immigration? Yes. We are not going to talk about the immigrants flowing into America from the southern border because that's really beside the point here. What we are going to talk about is that Trump has talked a lot about deporting millions of undocumented. documented immigrants who have come into America, which he claims would lower the cost of housing.

And that totally makes sense, right? If you are deporting a lot, I mean millions of people, we would suddenly have a lot of vacant homes. That would mean that our supply issue would lessen. We would have a much larger supply and then our prices would hopefully go down. But that's ignoring that immigrants actually make up about 20% of the American construction labor force. And lack of labor supply is already a major issue. We've talked a lot in this episode and also in our Harris episode about how the lack of available homes is hurting everyone. We're 3.8 million short. So we need to build a lot more of them. And who's going to build that? Well, 20% of that labor force is made up of immigrants. So if we suddenly deport all of them, that's going to hurt

that labor supply even more. And studies have also shown that immigrants who live in America typically live with family or in public housing. They're not in single family homes that could then be bought up by a family who's been looking for affordable housing. So deporting them actually wouldn't increase the housing supply as much as we would hope. Interesting. Okay. So could Trump potentially put this plan into place and deport millions of immigrants? Yes. And what would happen? What are the effects? Potentially an even slimmer construction labor force. We already can't build enough housing. And this wouldn't help. And this is, of course, not to mention the other ways that millions of deported immigrants would affect other industries within the economy, hospitality, food, transportation,

etc. Well, Jonathan, you have provided so much good information all about Trump's policies today. Thank you for your knowledge and research. Are there any final remarks that you would like to make? Yes. Every presidential candidate promises to do things they can't actually do, promises to do things they have no intention of doing, and generally just says whatever they need to to get into office, right? It's true of Trump. It's true of Harris. It's true of every candidate who's come before. They like to paint a really rosy picture with their policies. Looking at whether they can actually do it is something we have really tried to do here, looking at the powers of the president as they currently stand, and whether they can potentially within a four-year term, actually affect the housing market

as much as they say they can. You never know what they're actually going to follow through with, but despite what any politician says, the president has very little immediate influence on the economy and perhaps even less influence on the housing market, as we've talked about here. It's still important to look at what they've said and to see, especially from these two candidates, what they've done in the past. It can give us a clue to what they will do and what they'll put their efforts into. So I think summing it up nicely, Martin Orifice, CEO of Rent to Owen Labs, was talking with Yahoo Finance, and he said, a Trump win is going to lead to lower taxes and environmental regulations, both of which will help to spur new construction, but will also see less support for affordable housing. This is going to be good news for suburbs, real estate investors, and established homeowners, and bad news for renters and first-time homebuyers.

Since renters and first-time home buyers are likely to be younger, I expect most of the financial burden to fall on them. So the truth of the matter is that the housing market drives a huge segment of the American and hence the global economy. But it's a really complicated beast. It's made up of thousands of moving parts. Some of them influenced by the president, but a lot of them more influenced by Congress or the Supreme Court, which of course we did not get into at all here. But if you have any thoughts on the things that we've covered here or you have any thoughts on what else you'd like us to cover, please leave them down below in our comments. And be sure to check out our other video, which has Krista leading us through what Harris's tax policies would do to the housing market. Don't forget to like and subscribe.

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