A Joe Biden presidency could transform homeownership. Here are the winners and losers of his real-estate policies.
Joe Biden has been elected the 46th president of the United States. And as he approaches taking office on January 20, his policy proposals loom.
For the real-estate industry, big changes lie ahead, his housing plan suggests.
Biden’s stated goals — which include implementing a $15,000 tax credit for first-time homebuyers and closing the racial wealth gap in housing — affect all socioeconomic classes.
Ultrawealthy real-estate investors, middle-class homeowners, renters in underserved communities, and everyone in between are all poised to have their lives changed by a Biden administration.
His impact, however, will ultimately depend on whether he can gain congressional approval for his ambitious — at times controversial — proposals. A split government, with a Democrat-leaning House of Representatives and a Senate where Republicans hold a slim majority, makes it unclear whether Biden’s most ambitious legislation would definitely become law after he is sworn in.
Here are the different stakeholders a Biden presidency would affect, and how each of the president-elect’s policies are likely to play out for each.
People who want to buy a home
Biden has called for a tax break that would encourage Americans with modest means or middle-class roots to purchase a home. To that end, he has proposed a tax credit for first-time homebuyers of up to $15,000, which would be subject to congressional approval.
“The $15,000 tax credit for first-time homebuyers is necessary, since there are many young people ready to invest,” said Cecilia Serrano, a broker at Warburg Realty in New York City. “It is a way to energize the economy.”
What if you already own a home, or don’t own one just yet? You’re in luck: Another focus of Biden’s housing initiative is increased protections for homeowners and renters.
According to his website, Biden plans to ramp up housing benefits for first responders, public-school teachers, law-enforcement officers, firefighters, and other public and national service workers who live in lower-income communities or work in markets where there are low inventories of affordable homes.
To do this, he would expand the Good Neighbor Next Door program, an initiative from the federal department of Housing and Urban Development that offers employees in these fields discounts on homes in certain “revitalization areas” (of up to 50% off the listing price, with down payments as low as $100). Only certain properties qualify, and it has to serve as the beneficiary’s primary residence for a minimum of 36 months.
When a version of the Good Neighbor Next Door launched in September 2019 in Fayetteville, North Carolina, local police chief Gina Hawkins said it would help her attract employees. “I am definitely using this, and appreciate this opportunity for my officers,” Hawkins told the Fayetteville Observer.
Low-income individuals and communities in need
A significant portion of the Biden campaign’s housing plan is dedicated to the expansion of affordable, accessible housing.
Americans are faced with an acute shortage of affordable homes, according to a March 2019 report by the National Low Income Housing Coalition. Researchers at the Joint Center for Housing Studies of Harvard University found that tens of millions of Americans spend more than 30% of their income on housing, with little left over to spend on other essentials. This doesn’t even account for the tens of millions of Americans who live in homes that endanger their health and safety, according to the Center for American Progress.
To combat this, the Biden housing plan would push for the reinstatement of the HUD’s risk-sharing program, which has helped secure financing for thousands of affordable rental units in partnership with housing finance agencies.
There are also plans to assist low-income individuals through the establishment of a $100 billion Affordable Housing Fund, intended to construct and upgrade affordable housing.
If the fund earns congressional approval, the $100 billion is set to be broken up as follows: $65 billion to new incentives for state housing authorities and the Indian Housing Block Grant program; $10 billion to energy-efficient homes; $5 billion to increase the stock of affordable housing as part of larger community development efforts; and $20 billion to the Housing Trust Fund, which would support the construction and rehabilitation of affordable housing units.
Like-minded politicians have expressed optimism about the fund’s implications.
“That is so much better than anything we’ve seen from the federal government in a long time,” California Sen. Scott Wiener told the San Francisco Examiner of the proposed $100 billion fund. “The Democratic Party rallied around progressive housing policies and that’s fantastic. It’s not just the Bay Area or California — housing is a problem in big swaths of the United States.”
Additionally, a Biden administration would provide tax incentives for the construction of more affordable housing in communities that need it most, including the expansion of the Low-Income Housing Tax Credit (LIHTC), a tax provision designed to incentivize the construction or rehabilitation of affordable housing for low-income tenants.
Since the 1980s, the LIHTC has created nearly 3 million affordable-housing units thanks to a $10 billion investment, according to a report from the Urban Institute and the US Treasury. Pending congressional approval, Biden’s plan intends to significantly increase the number of new or renovated affordable-housing units eligible for the tax credit.
According to Biden’s website, the president-elect would also support House Majority Whip James E. Clyburn and Sen. Michael Bennet’s Legal Assistance to Prevent Evictions Act. The legislation aims to provide free legal assistance to low-income and cost-burdened tenants confronting eviction, a problem especially acute during the coronavirus pandemic and the unemployment rates that have spiked nationwide as a result.
Then there’s transitional housing, which provides populations in need — such as those just released from prison — a place to stay temporarily. The Trump administration has cut funding for transitional housing like halfway houses, Reuters reported. Meanwhile, Biden plans to expand funding and require that HUD work only with entities willing to house people looking for what Biden’s site describes as “a second chance.”
Biden’s tax plan was a major point of controversy throughout his campaign, as many Republicans criticized his stated intention to raise income taxes on individuals making over $400,000.
For real-estate investors, though, the potential repeal of existing tax breaks — specifically, 1031 exchanges — poses the biggest threat.
The 1031 exchange, also called a 1031 transfer, is provision that gives investors and owners the ability to defer capital-gains taxes from the sale of an investment or business-use property — as long as a like-kind asset is purchased with the sale’s profits. Put simply, the 1031 allows people to continue buying and selling real estate without paying the IRS a big chunk of change for those transactions.
It’s a go-to strategy for investors looking to swap one asset for another, or for any investors interested in avoiding a capital-gains tax of up to 20%, depending on your bracket. In concrete terms, 1031 transfers could mean hundreds of thousands of dollars in immediate tax savings.
But Biden has proposed ending that tax provision — one favored by real-estate investors, including Trump himself — for those who take in a yearly income of more than $400,000.
The idea to ditch this section of the tax code was mentioned with the release of Biden’s economic plan. The Real Deal reported that the billions generated by repealing the benefit would support Biden’s “caring economy plan,” which calls for universal preschool for 3- and 4-year-olds and a child-care tax credit of up to $8,000 for middle-class families, among other things.
A tax credit targeted by both Democrats and Republicans over the years, the 1031’s repeal (which would require congressional approval) could mean the loss of more than $50 billion for real-estate investors over five years, according to Congress’ Joint Committee on Taxation.
One investor told Business Insider repealing the 1031 would be a huge mistake. “This is how people build generational wealth without getting taxed to death,” said Cody Sperber, a Phoenix, Arizona-based real-estate investor who has worked his way to hundreds of millions in deals.
Sperber emphasized that the 1031 exchange could raise the tides of several tiers of investors.
“It really helps veterans, women, people of color, and people who don’t have access to good banking and financial structures. People like me, who started with nothing,” Sperber said. “It gives the ability to build real wealth over time, and have buying power, and roll it forward, and grow that investment over the years — and only get taxed one time.”
Other experts say there’s not much to worry about because Democrats will need some serious political winds to blow their way if they’re to control the House of Representatives and Senate when Biden takes office in January. Democrats need to win two Georgia runoff races in early January in order to take back the Senate majority, otherwise it’ll be Republicans in the upper chamber who will have the ability to limit the scale of legislation Biden will be able to pass.
“A split government means that big tax hikes are not likely to happen, and that is good for mortgage rates and another boost to NYC real estate,” said Melissa Cohn, executive mortgage banker at William Raveis. “Getting back the SALT (state and local tax) deduction would be the icing on the cake.”
According to the Washington D.C.-based think tank Tax Foundation, the SALT deduction “permits taxpayers who itemize when filing federal taxes to deduct certain taxes paid to state and local governments.”
President Trump capped the deduction at $10,ooo per year through the Tax Cuts and Jobs Act. However, Biden’s published tax plan hasn’t given a clear indication on how or if he will depart from his predecessor’s stance.
“Biden’s published tax plan does not include the repeal of the state and local tax (SALT) deduction cap, which is a priority of some leading congressional Democrats, though the Biden campaign has indicated at times that this would be part of the tax package and has more recently suggested that this may be left to the discretion of Congress,” a Tax Foundation report said.
Either way, Biden would need congressional approval to move forward with any SALT changes.
Equal rights and fair housing advocates
Tackling the discrimination based on race that is prevalent in the current housing market is a priority for Biden, and he has a several plans to combat the racial wealth gap in real estate.
Specifically, changes to zoning and appraisals are on the horizon.
When it comes to determining a home’s worth, Biden plans on implementing a national standard for appraisals. This would help prevent homes in communities of color from being undervalued. Biden has also pledged to put $300 million toward Local Housing Policy Grants, a program designed to help states and localities “eliminate exclusionary zoning policies and other local regulations that contribute to sprawl.”
A 2018 case study by the Brookings Institution found that when compared to neighborhoods with very few or no Black residents, similar quality homes in majority Black neighborhoods with similar amenities were valued 23% less.
“The undervaluation of housing in black neighborhoods has important social implications,” the report reads. “Black homeowners realize lower wealth accumulation, which makes it more difficult to start and invest in businesses and afford college tuition.”
Some appraisal industry professionals have objected Biden’s idea, using the argument that a national standard for appraisals already exists.
“To be quite frank, the assertion that appraisers would systematically undervalue or overvalue real estate due to these factors is absurd and shows a profound misunderstanding of the real-estate valuation profession. Appraisers have nothing to gain by such behavior, and in doing so we would lose the hard-fought public trust we have achieved over many, many years,” the president of the Appraisal Institute, Jefferson L. Sherman, wrote in a letter to Biden back in March. “Since national appraisal standards and ethics requirements already are in place, and since those requirements are enforced as law, there is no need for additional standards. We urge you to reconsider your position.”
But a September study in the journal Social Problems found that the widening gap between Black home appraisals and white home appraisals could be attributed to appraisers using the “sales comparison approach” to valuing homes. This strategy, based off previously sold properties nearby, can result in unaware appraisers valuing homes based on pricing that was determined prior to the implementation and enforcement of fair housing laws in the 1960s and 1970s. By using neighboring properties — whose prices may have been depressed for decades — as benchmarks, appraisers today “literally baked into the system the racialized element and continued it,” said Junia Howell, one of the authors of the study.
In addition to appraisals, Biden plans to allow the Office of Fair Lending and Equal Opportunity to enforce settlements against lenders who have discriminated against borrowers. In 2018, under Trump, Acting Consumer Financial Protection Bureau Director Mick Mulvaney stripped the agency’s fair-lending office of enforcement powers, American Banker reported.
He would also re-implement the Affirmatively Furthering Fair Housing (AFFH) provision of the Fair Housing Act, which was suspended by the Trump Administration in July 2020. This provision, Biden’s website states, “requires communities receiving certain federal funding to proactively examine housing patterns and identify and address policies that have a discriminatory effect.” And the Fair Housing Act, according to the United States Department of Justice, protects people from being denied housing based on race or color, religion, sex, national origin, familial status, or disability.
A recent Forbes article said that the dismantling of the Affirmatively Furthering Fair Housing provision followed criticism that there were “too many hoops to jump through in order to get funding.”
But the Biden initiative doesn’t see it that way.
“The 2015 AFFH rule offers guidance, not a particular solution,” Solomon Greene, who helped write the provision five years ago, told Forbes. “Every plan I’ve reviewed has been incredibly diverse; there was a huge range of strategies depending on the area. This is very far from Trump’s assertion that the AFFH rule was requiring rezoning of suburbs or even to build affordable housing.”
Foreign buyers of luxury real estate
America’s current economy is crippled by the pandemic. Many real-estate professionals believe that Biden’s already-proven commitment to fighting the coronavirus would indirectly boost the housing market.
Take the current limitations on international travel thanks to COVID-19. The luxury real-estate sector — which in certain cities like New York relies heavily on foreign buyers looking for pied-a-terres and places to park wealth earned abroad — is suffering as a result.
“This is tarnishing the image of the US as a safe haven. We are currently talking with developers in Miami and NYC who have seen the buyers dry up and need to sell the remainder of their condo inventory in bulk to raise capital,” Bruce Goldstein, a developer and CEO of Bulk Condo Deals, told Business Insider. “If the new administration is able to manage the pandemic better and have a more positive rhetoric towards foreigners, it could provide stability and predictability in luxury real estate.”
This content was originally published here.