Trump Towers Over The US Real Estate Market

Trump Towers Over The US Real Estate Market

A real estate mogul, Miss Universe beauty pageant owner and TV star walk back into the Oval Office… this is not the start of a joke, but instead will be a fact as US President-elect Donald Trump takes office in January 2025. In this blog, we will explore some of the potential effects of Trump’s presidency on real estate, based on the policies and priorities discussed in during his campaign and previous term.

On the positive front, the Trump campaign has discussed aggressive deregulation of businesses, which could reduce the complexity and costs of navigating environmental and zoning laws for developers. Streamlined regulatory processes could make it easier for developers to obtain permits, thus expediting construction timelines. In his first term, Trump enacted the Tax Cuts and Jobs Act (TCJA), which includes tax provisions that dramatically changed aspects of the real estate market for building owners and developers. The TCJA increased the maximum tax deduction of acquired Section 179 property to $1 million and the phase-out threshold to $2.5 million. It also broadened the scope of tax deductions to include used capital equipment – provided it was new to the taxpayer – while expanding eligibility to improvements such as interiors, roofs, HVAC, fire protection systems and security systems.

Prior to the TCJA, firms could expense a maximum first-year bonus depreciation of 50% for brand new qualified property acquired. The TCJA introduced temporary 100% expensing for property acquired and placed in service between September 27, 2017 and January 1, 2023, as well as expanded the definition of eligible property to include used property. This allowed firms to fully deduct the costs of qualifying building components in their first year even if they’re used; but only elements that were qualified as “dedicated, decorative or removable”, such as carpets or specialized cooling systems. Although the bonus depreciation has been decreasing since 2022, Trump has proposed restoring the 100% bonus depreciation. This would encourage real estate developments and upgrades, as developers would face a lower financial penalty for doing so – thus improving the return on investment of these upgrades. This is a definite plus for the real estate economy, as well as potentially for the environment, as these upgrades could be used to improve energy efficiency and reduce overall environmental impact.

On the flip side, Trump’s stances on international trade and immigration policy are likely to negatively impact the real estate market. The President-elect has already publicly stated that he would impose a 25% tariff on imports from Canada and Mexico, and even higher tariffs for China. The chief economist of the Associated Builders and Contractors, Anirban Basu, has said that China supplies around 18% of US imports, including key construction materials such as drywall. If such tariffs are put in place, this would drive up the costs of construction and refurbishment projects, as well as the costs of repairs and maintenance. According to the National Immigration Forum, an estimated 30% of the US construction workforce is made up of immigrants. The construction industry is well-known to employ undocumented workers due to labour and skill shortages. Trump’s strict stance on immigration could influence staffing costs for projects, leading to delays and increased project-delivery budgets.

These are just a few examples of the potential impacts of Trump’s presidency on the US real estate market. Trump’s stances on capital gains taxes, state and local tax (SALT) deductions and decarbonization could also have wide-reaching effects on the market. Although there’s still much uncertainty regarding the true impact, building owners, real estate investors and lessors must start familiarizing themselves with the potential effects of Trump’s presidency.