For transparency purposes, I’d like to point out that I am not an economist. My college degree isn’t in economics and in general I find it a boring subject most days. What I am, however, is a real estate investor and serial entrepreneur. I have run companies large and small, have been the small cog in larger companies and generally know how small business lives and operates in the United States economy.
Most people focus on the social aspects of a Trump Presidency. Will he eliminate abortion? Gay marriage? Will Muslims and latinos be rounded up and deported? That’s not what I’m focusing on with the post. I want to focus rather on the economic impacts to small businesses and large. I believe that if there is true lasting damage that can be caused by Trump, its to the economy as a whole.
I’ll admit, I voted for Clinton out of purely selfish reasons. I wanted someone who could keep the lights on, the water running, and the cogs spinning. While Trump is a businessman, I found his track record dubious at best. There is a long list of failed businesses and broken contracts that left a bad taste in my mouth, aside from the whole pussy-grabbing incident. I also personally believe you cannot operate a government like a business and vice versa. They are two different skill sets. Where government is exact, business is efficient. For instance, if someone wants to buy one of my investment properties and makes it known they dont have enough money, I don’t have to give them the time of day. Whereas in government, and citizen with a legitimate grievance must be heard no matter their race, sex or bank account balance. At one time in real estate, you could simply not sell to black people if you so desired. You were given that sort of freedom in business. I believed, and still believe, Clinton had the proper tool set needed to run the country. I don’t even know what Trump’s toolset is, or if its even close to my own.
While the Trump candidacy was pretty vague as to what it would actually do, earlier in October they released a plan for its first 100 days in office. I’ll discuss them in depth from the perspective of a small business owner:
“FIRST, propose a Constitutional Amendment to impose term limits on all members of Congress”
This really has nothing to do with my company. Best of luck to him. If you can get 2/3rds of congress to vote against their best interests, then hes going to go down as one of the better presidents. Then 3/4ths of the states have to ratify it in their legislatures. I’m going to go out on a limb and say this will be forgotten by Summer of 2017.
“SECOND, a hiring freeze on all federal employees to reduce federal workforce through attrition (exempting military, public safety, and public health)”
As a property investor, anyone with a job that pays rent is great. Less government jobs means less qualified renters, albeit by a tiny amount. I don’t operate in an area where a military member would rent my house, so most of this doesn’t apply. Trump can do this through executive action I believe, not that he needs to. I’m sure a GOP congress would be happy to oblige. Neutral to slightly negative for property investors.
“THIRD, a requirement that for every new federal regulation, two existing regulations must be eliminated;”
This is really vague, and completely arbitrary. I came into real estate at a time where there was little to no regulation and it came to bite us in the ass pretty hard. As much as I would love to not deal with HUD regulations, they are there for a reason. Say he does away with many HUD regulations or HUD entirely (its not out of the question). I would have some serious questions as to how my Section 8 tenants are going to pay rent. I would also worry about the loan market if it were left up to the free market. Does sub-prime come back? Or is lending going to be restricted to those who can afford it only? While this may free up a ton of money, the pool of buyers becomes smaller. Its a net negative effect I believe.
“FOURTH, a 5 year-ban on White House and Congressional officials becoming lobbyists after they leave government service;”
I’m not a political science wonk, but my fiancee pointed out to me that this runs against the First Amendment. Best of luck to Trump with this one. Net neutral effect on property.
“FIFTH, a lifetime ban on White House officials lobbying on behalf of a foreign government;”
“SIXTH, a complete ban on foreign lobbyists raising money for American elections.”
Terrible irony aside, I don’t really see this impacting real estate.
“SEVENTH, I will announce my intention to renegotiate NAFTA or withdraw from the deal under Article 2205”
Its pretty much agreed that this would start some sort of trade war with Mexico. Seeing as Trump plans on building a gigantic wall down there, I think that’s the idea. There’s a few problems with this though:
NAFTA allows the tariff free trade of goods through US, Mexico and Canada. You can argue for days whether this is good or bad. Statistically there was a net benefit as a whole, but that gets all thrown out the window. To give you an example, Walmart had something like 900 retailers in 1993. Currently, and partially due to NAFTA, Walmart has over 11,000 stores across the world and is the largest private sector employer in the United States. They do this by provided the absolute lowest price, ordering in bulk and streamlining their operations. You can say what you want about Walmart, but they are efficient, smart and would be utterly devastated by a 45% tariff placed on overseas/Mexican goods. Walmart employees 1.4million people in the US. There are two supercenters in the city I invest in and dozen in the city I live in. I can only imagine the shock when goods from local retailers are suddenly 45% more. I would seriously worry that a number of my renters would lose their jobs and thus stop paying rent. Thats a huge net negative for real estate investment.
“EIGHTH, I will direct the Secretary of Commerce and U.S. Trade Representative to identify all foreign trading abuses that unfairly impact American workers and direct them to use every tool under American and international law to end those abuses immediately”
This is so completely vague I don’t really know what you can say. Are you addressing the dumping of chinese steel on the world market? OPECs stranglehold on oil production? Chinese hoarding or rare earth materials? Ending those abuses is great in theory and a net positive for real estate investment, but there is significant lag time from implementation to seeing an effect. Also, expect some sort of economic retaliation from those countries in turn. Net negative or net positive for real estate.
“NINTH, I will lift the restrictions on the production of $50 trillion dollars’ worth of job-producing American energy reserves, including shale, oil, natural gas and clean coal.”
That would be an overall net positive if the world wasn’t already vastly over-supplied with crude, natural gas and coal. So long as chinese workers mine coal for $5/day, West Virginia will never see its production restart. You may see net positives in areas that produce oil and gas, but again those are highly volatile areas of investment. The boom and bust of that industry is not conducive to long term investment in real estate. Lastly, renewables are now at, or below cost parity with fossil fuels. There’s more jobs to be had at Musk’s Gigafactory or Iowa’s wind farms than there is in shale production. Net neutral to net positive for real estate (but not by much).
“TENTH, lift the Obama-Clinton roadblocks and allow vital energy infrastructure projects, like the Keystone Pipeline, to move forward”
Last time I read Keystone would only produce a few dozen stable jobs after construction is complete. This will have little to any effect on real estate investment.
“ELEVENTH, cancel billions in payments to U.N. climate change programs and use the money to fix America’s water and environmental infrastructure”
Theoretically this would be the biggest net positive so far. How and when that money gets to the cities is still to be seen. This is out of the President’s control, but would be a good start. Currently Flint is a wasteland, and anyone investing there is losing their shirts. I’m willing to bet good money there are a dozen cities like Flint to pop up when this money is available.
“TWELFTH, cancel every unconstitutional executive action, memorandum and order issued by President Obama”
Trans Pacific Partnership would be the major loser here. Any clean power plan is gone. Its effect on real estate investment are completely unknown as its impossible to know which orders Trump will axe.
“THIRTEENTH, begin the process of selecting a replacement for Justice Scalia from one of the 20 judges on my list, who will uphold and defend the Constitution of the United States”
Aside from any sort of bank regulation or pending cases with Fannie Mae or HUD, this is a net neutral to real estate.
“FOURTEENTH cancel all federal funding to Sanctuary Cities”
Honestly I have no idea how this would work. The loss of federal grant money to any city would be terrible for investors. A loss of several billion dollars in federal funding on the west coast would have reverberating effects on surrounding property values. Cuts to social services or increased local taxes would follow. Both are net negative for real estate investment.
“FIFTEENTH, begin removing the more than 2 million criminal illegal immigrants from the country and cancel visas to foreign countries that won’t take them back”
This effect on real estate really depends on what it will look like. If it is simply deporting criminals currently in the system, then its net neutral. If its deporting aliens via traffic stops and warrants, then its potentially catastrophic for many latino areas. Deported tenants mean lost revenues. Empty houses lead to vandalism. All lead to lower property values in the short term. Net negative for real estate most likely.
“SIXTEENTH, suspend immigration from terror-prone regions where vetting cannot safely occur. All vetting of people coming into our country will be considered extreme vetting.
If he is talking about poor refugees from Syria, than this wont effect real estate at all. If he bans all Muslims from entering the country for any amount of time, that can have severe consequences on real estate. Qataris, Saudis, Iranians and Turks account for large amounts of real estate holdings on the coasts. If they are forced to sell, or not allowed into the country, that can potentially be very bad for metropolitan areas. Less investors means a net negative for real estate.
Additionally, he plans to push through the following Acts:
Middle Class Tax Relief And Simplification Act: Tax brackets reduced to 3 (12, 25 and 33%). Increases standard deduction to $15,000 or $30,000 depending on marital status. Deductions capped at $100,000 or $200k for married couples. Obamacare tax eliminated. Alternative minimum tax and estate taxes are both eliminated. Childcare is now tax deductible. Business tax reduced from 35 to 15% across the board. Corporate AMT eliminated. Most corporate expenditures eliminated.
For real estate investors, and small businesses in general, this seems awesome and a net positive. However, in the long run this will run up the deficit significantly, and massive changed in the tax codes are always messy things historically. It is also unclear if this will have any sort of boost to middle and lower income families. Net positive to net neutral.
End The Offshoring Act: Establishes tariffs to discourage companies from laying off their workers in order to relocate in other countries and ship their products back to the U.S. tax-free.
Great in theory, absolutely terrible in practice because of this:
Discouraging companies from relocating overseas is a well-needed regulation for this country and in general would be a net positive. Doing this by establishing tariffs on goods said companies produce overseas would lead to trade wars and retaliatory tariffs. Imagine China imposing a 50% tariff on Iowan corn or 30% on cars produced in Alabama. Worse yet, they could escalate by simply refusing to by US Treasury bills. If you want an example, read up on the Smoot-Hawley Act. Long story short, the tariffs imposes reduced America’s imports AND exports by more than half. HALF. The day Canada slaps a 60% tariff on trucks made in Michigan is the day Michigan’s economy collapses. I can’t begin to explain how negative this will be for real estate investment and investment as a whole.
American Energy & Infrastructure Act: Leverages public-private partnerships, and private investments through tax incentives, to spur $1 trillion in infrastructure investment over 10 years. It is revenue neutral.
More roads and bridges are good for the economy in general. Having to pay every time you drive on them is not. The Act basically provides large tax credits to investors who build infrastructure projects minding of course said projects have a revenue stream. That means lots of toll roads. That means potential abuses of eminent domain which is always negative for real estate investors. Could be positive or negative depending on where you invest.
School Choice And Education Opportunity Act: Redirects education dollars to give parents the right to send their kid to the public, private, charter, magnet, religious or home school of their choice. Ends common core, brings education supervision to local communities. It expands vocational and technical education, and make 2 and 4-year college more affordable.
The last part I assume is just a lovely theory not backed by anything. Essentially these are block grants given to the states via the Dept of Education. Better local schools always means better real estate appreciation. However, not ever area has access to charter schools. Moreover, the areas with bad public schools rarely have openings for an influx of charter students at new charter schools. Charter schools also don’t always equate to better schools, as many have failed in the past. This is net positive, but needs to be flushed out more and tested.
Repeal and Replace Obamacare Act: Fully repeals Obamacare and replaces it with Health Savings Accounts, the ability to purchase health insurance across state lines, and lets states manage Medicaid funds. Reforms will also include cutting the red tape at the FDA: there are over 4,000 drugs awaiting approval, and we especially want to speed the approval of life-saving medications.
Socially, its effects are pretty obvious. Twenty million people lose their insurance, including yours truly. Obamacare recipients aren’t sickly degenerates. Many of them are small business owners. While yes, premiums have risen, there is no proof here that premiums wont continue to rise without ACA regulations. That stresses both the investor, the buyer and the tenant. With less money to go around, fewer houses are bought and rent is not paid on time. Unless they can flush out what HSAs truly mean to the marketplace, Im having a hard time seeing how this is anything but a net negative for real estate investors.
Affordable Childcare and Eldercare Act: Allows Americans to deduct childcare and elder care from their taxes, incentivizes employers to provide on-site childcare services, and creates tax-free Dependent Care Savings Accounts for both young and elderly dependents, with matching contributions for low-income families.
This would most likely be a huge net positive for buyers and renters. However, its implications are not yet known. Its negative in revenues to the government for sure, and its passage by congress is questionable at best.
End Illegal Immigration Act: Fully-funds the construction of a wall on our southern border with the full understanding that the country Mexico will be reimbursing the United States for the full cost of such wall; establishes a 2-year mandatory minimum federal prison sentence for illegally re-entering the U.S. after a previous deportation, and a 5-year mandatory minimum for illegally re-entering for those with felony convictions, multiple misdemeanor convictions or two or more prior deportations; also reforms visa rules to enhance penalties for overstaying and to ensure open jobs are offered to American workers first.
I will believe it when they start construction. I would treat it as any large infrastructure project. Areas around the Hoover Dam temporarily boomed during construction. Border cities might see a temporary boost. The changes in incarceration don’t really matter as far as real estate goes. Slight positive if they actually build the thing, otherwise, neutral.
Restoring Community Safety Act: Reduces surging crime, drugs and violence by creating a Task Force On Violent Crime and increasing funding for programs that train and assist local police; increases resources for federal law enforcement agencies and federal prosecutors to dismantle criminal gangs and put violent offenders behind bars.
I suppose in general better law enforcement is a net positive to real estate values as a whole unless areas get sequestered or locked down.
Restoring National Security Act: Rebuilds our military by eliminating the defense sequester and expanding military investment; provides Veterans with the ability to receive public VA treatment or attend the private doctor of their choice; protects our vital infrastructure from cyber-attack; establishes new screening procedures for immigration to ensure those who are admitted to our country support our people and our values
Increased military spending is great in towns that manufacture military equipment. So see booms in cities that have Boeing, GE and General Dynamics-type plants. Cities with naval facilities will see a boost like San Diego and Norfolk. Net positive if it actual passes congress.
Clean up Corruption in Washington Act: Enacts new ethics reforms to Drain the Swamp and reduce the corrupting influence of special interests on our politics.
This doesn’t actually say anything.
So in conclusion, it doesn’t look all bad from the bullet points. However, the effects of tariffs upon this country far far outweigh any benefits they may bring to local real estate prices and investment. Can America retool to be self-sufficient in manufacturing? Sure, if there is a will to do so. But there is significant lag time from implementation to action. As much as I would love to see my renters employed in manufacturing plants making household goods, they are going to have to survive the closing of their local Walmarts and various other service sector employers.
The effects of tariffs upon a country that has had significant benefits of free trade agreements cannot be ignored. Most consumers cannot survive a 40% increase in household goods or produce, certainly most small businesses cannot. Hell, most large corporations will have difficulty coping. Unless Trump comes out with some sort of gradual tariff increase, or an actual hashed-out plan, I don’t see this ending well for real estate investors.