With the Democratic and Republican conventions taking place over the next couple weeks, our sights turn to their plans for the housing market.
Until this point in the election, Hillary Clinton and Donald Trump have had little to say about housing. While other hot-button issues have received more attention, homeownership, lenders, the future of Fannie Mae and Freddie Mac, housing subsidies and the state of the rental market are all extremely important issues to the U.S. economy that directly affect everybody — especially if you’re a real estate professional.
While the candidates haven’t been vocal on housing issues, voters are nervous about how their policies may influence the housing market.
A nationwide survey of homebuyers conducted by national real estate brokerage Redfin found homebuyers are pessimistic about the presidential election’s potential impact on the housing market. For instance:
- 27% of homebuyers believe the presidential election will negatively impact the housing market, up from 15% earlier in 2016;
- just 10% believe the election will positively impact the housing market, down from 11% earlier in 2016; and
- 63% believe the election will have no impact on the housing market, down from 75% earlier in 2016.
What are they saying about housing?
Even though housing policy hasn’t been the subject of any primary debates, we can gain a clue on where the candidates stand from reading the respective parties’ platforms.
The pre-convention draft of the recently released Democratic Party Platform states the party will help housing by:
- increasing the number of rental units via more incentives and fewer obstacles to building new “affordable” housing;
- increasing funding to the National Housing Trust Fund, which constructs, maintains and renovates affordable rentals across the county;
- increasing funding to the housing choice voucher program, which supports Section 8 housing;
- strengthening the Fair Housing Act, presumably to expand protections of various gorups;
- implementing credit score reform, though details on this are sparse; and
- expanding counseling programs for foreclosure avoidance.
The full draft of the Republican Party Platform will be released at their convention. However, the party platform tends to change little from election cycle to cycle. Further, if the platform debates are any indicator, little will change on housing from the 2012 Republican Party Platform, which denigrated the Dodd-Frank Act and promised to help housing by:
- reducing the federal government’s involvement in mortgage lending;
- decreasing the size and scope of Fannie Mae and Freddie Mac;
- decreasing the size of the Federal Housing Administration (FHA) and limiting FHA-insured mortgages to first-time homebuyers and low- and moderate-income homebuyers;
- maintaining the use of housing vouchers for low-income and elderly households; and
- writing housing policy to account for rising demand for rentals.
Of course, in addition to his celebrity status, Trump is a businessman who has made his living in real estate. In many people’s books, this makes him the ultimate authority when it comes to the housing market.
But knowledge of the luxury real estate market falls short of a comprehensive housing plan for all of our nation’s residents, including low- and middle-income households.
On the other hand, the sole focus of the Democratic party’s — and thus Clinton’s — housing policy is only on low-income households.
What can we expect from the candidates’ housing policies?
As the two candidates match up over the coming months, expect Clinton to toe the party line when it comes to housing. Trump may stick close to the party platform, though his campaign continues to surprise.
What’s notably missing from either party’s platform are mentions of certain tax policies that impact the housing market, like capital gains.
However, during the primaries each candidate proposed to alter capital gains rates and limits.
Clinton’s published tax plan proposed to create a new capital gains schedule.
The current schedule taxes the gain at the regular income tax rate (maximum of 43.4% including the additional tax introduced by the Affordable Care Act) if it is realized within less than one year of acquiring the asset and at a maximum of 23.8% if it is realized anytime after a year. Clinton plans to reduce the capital gains tax based on years the household holds the asset before realizing the gain so that capital assets held:
- less than two years will be taxed at the regular income tax, at a maximum of 43.4%, depending on the taxpayer’s tax bracket;
- two-to-three years will be taxed at a maximum of 39.8%, depending on the tax bracket;
- three-to-four years will be taxed at a maximum of 35.8%;
- four-to-five years will be taxed at a maximum of 31.8%;
- five-to-six years will be taxed at a maximum of 27.8%; and
- over six years will be taxed at a maximum of the current 23.8% tax rate.
Clinton’s proposal will primarily affect short-term investors, which may discourage real estate speculators and other investors. Still, this may contribute some stability to the housing market at a time when prices are rising too fast for end user incomes to keep up.
Trump’s published plan for capital gains is simpler. He plans to cap the capital gains tax at a ceiling of 20%. This will make it easier for short-term investors to profit, which encourages real estate investment and tends to push prices higher — though perhaps to the detriment of low- and middle-income homebuyers unable to compete in today’s already hot market.
Neither candidate plans to touch the mortgage interest deduction (MID), the long-time homeownership incentive (which disproportionately benefits wealthy homeowners).
The next president’s housing policy has the potential to dramatically impact your business. Here’s to hoping they start talking about it sooner rather than later.