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How full Democratic control of Washington DC could transform real estate

Published by Business Insider on Sun, 10 Jan 2021

<p><img src="https://static6.businessinsider.com/image/5ff62513d184b30018aad621-2400/GettyImages-1228035062.jpg" border="0" alt="Nancy Pelosi" data-mce-source="Shen/Xinhua via Getty Images" data-mce-caption="House Speaker Nancy Pelosi speaks during a press conference on Capitol Hill in Washington, DC on August 13, 2020."></p><p></p><bi-shortcode id="summary-shortcode" data-type="summary-shortcode" class="mceNonEditable" contenteditable="false">Summary List Placement</bi-shortcode><p>Before he was president-elect, Joe Biden had a <a href="https://www.businessinsider.com/joe-biden-real-estate-policies-taxes-affordable-housing-2020-11">long list of proposals</a> with the potential to transform the real-estate industry.&nbsp; His $640 billion, 10-year <a href="https://joebiden.com/housing/">housing initiative</a> was poised to affect everyone from those seeking affordable housing to <a href="https://www.businessinsider.com/joe-biden-presidency-housing-policy-threatens-real-estate-investing-2020-11" target="_blank" rel="noopener noreferrer" data-stringify-link="https://www.businessinsider.com/joe-biden-presidency-housing-policy-threatens-real-estate-investing-2020-11" data-sk="tooltip_parent">real-estate investors</a>.</p><p>After the November election, Republicans seemed poised to retain a majority in the senate, acting as a block on some or all of Biden's housing plans.</p><p>"Biden's housing plan is likely just a wish list unless the Democrats can wrangle control of the senate," Forbes Advisor reporter Natalie Campisi <a href="https://www.forbes.com/advisor/mortgages/biden-housing-policies/">wrote</a> in November. But after early January, the <a href="https://www.businessinsider.com/georgia-senate-runoffs-loeffler-warnock-ossoff-perdue-live-results-2021-1">Democrats have got</a> that control, <a href="https://www.businessinsider.com/democrat-majority-policy-priorities-senate-house-biden-warnock-ossoff-georgia-2021-1">sweeping both of the open senate seats</a> in the special election in Georgia.&nbsp;</p><p>Democrats have at least two years to take advantage of their majority, as <a href="https://ballotpedia.org/United_States_Senate_elections,_2022">34 senate seats</a> will be up for grabs in 2022.</p><p>Here's a rundown of some of the Biden housing initiatives that now have a clearer path to passage.</p><h2 id="fair-housing-proponents"><strong>Creating more affordable housing</strong></h2><p><strong><img src="https://static5.businessinsider.com/image/5ff78ae2d184b30018aadaa9-910/GettyImages-1229520446.jpg" border="0" alt="kamala joe biden victory speeches" data-mce-source="Andrew Harnik-Pool/Getty Images" data-mce-caption="President-elect Joe Biden and Vice President-elect Kamala Harris take the stage at the Chase Center to address the nation November 07, 2020 in Wilmington, Delaware."></strong></p><p>To combat the affordable housing crisis in the US, Joe Biden wants to create a $100 billion Affordable Housing Fund$65 billion of which would be pooled toward building and rehabilitating affordable housing in places where there are shortages.</p><p>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.</p><p>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.</p><p>But those 3 million units have barely made a dent in the affordable housing crisis currently crippling our country. The National Low Income Housing Coalition <a href="https://www.reuters.com/article/us-usa-election-housing-trfn/biden-win-seen-as-turning-point-for-affordable-housing-idUSKBN27Q37T">estimates that no US state</a> has adequate affordable housing, with the nationwide shortage coming to 7 million units.</p><p>This ambitious plan to tackle the shortage was previously seen as difficult to move past a Republican-controlled Senate. That's now changed.</p><h2 id="fair-housing-proponents"><strong>Repealing breaks for investors</strong></h2><p><img src="https://static4.businessinsider.com/image/5ff78b7c6d61c10019cce467-2400/GettyImages-1229299241.jpg" border="0" alt="Women biden harris suburban supporters" data-mce-source="Elijah Nouvelage/AFP via Getty Images" data-mce-caption="Two women holding Biden/Harris lawns signs take a selfie at a rally with Democratic Senate candidates Rev. Raphael Warnock and Jon Ossoff on October 24, 2020, in Duluth, Georgia."></p><p>During the campaign, many Republicans criticized Biden's plans to <a href="https://www.businessinsider.com/joe-biden-wont-raise-taxes-people-earning-less-than-400000-2020-5" data-analytics-module="body_link" data-analytics-post-depth="40" data-uri="902524704bfb5a56091596e9955df182">raise income taxes on individuals making over $400,000 a year</a>. That is among Biden's bolder tax proposals that now have a greater likelihood of passing a Democrat-controlled senate.&nbsp;</p><p>For real-estate investors, one of Biden's most pressing <a href="https://www.businessinsider.com/joe-biden-presidency-housing-policy-threatens-real-estate-investing-2020-11">tax threats</a> was the proposed repeal of existing breaks including the <a href="https://www.businessinsider.com/how-investors-can-save-on-capital-gains-tax-with-a-1031-transfer" data-analytics-module="body_link" data-analytics-post-depth="40" data-uri="de663e4e80a74923cc38ebb301073872">1031 exchange</a>.</p><p>Also called the 1031 transfer, the exchange is a provision that gives property owners and investors the ability to defer capital-gains taxes at the sale of an investment or business-use property, provided a "like-kind asset" is purchased with its profits.&nbsp;</p><p>The strategy is a favorite for investors looking to swap assets, or for any investors interested in avoiding a capital-gains tax of up to 20%, depending on your bracket. Put simply, 1031 exchanges can often mean hundreds of thousands of dollars in immediate tax savings.</p><p>Real-estate investors, including President Trump, have long favored the strategy, and Biden has proposed ending it for those who take in a yearly income of more than $400,000. Under the new plan, real-estate investors would also be prevented from deducting real estate losses from their taxable income.&nbsp;</p><p>Outlined in the release of Biden's economic plan, the repurposed tax dollars are expected to fund Biden's "caring economy." <a href="https://therealdeal.com/2020/07/21/bidens-775b-caring-economy-plan-to-be-funded-by-real-estate-taxes/" data-analytics-module="body_link" data-analytics-post-depth="60" data-ml-dynamic="true" data-ml-dynamic-type="sl" data-orig-url="https://therealdeal.com/2020/07/21/bidens-775b-caring-economy-plan-to-be-funded-by-real-estate-taxes/" data-ml-id="3" data-ml="true" data-xid="fr1605106138234aea" data-skimlinks-tracking="" data-uri="b61092209423d8a517055fa5b7d535b5">The Real Deal reported</a> that the billions generated from targeting the tax breaks would fund plans for programs like universal preschool and a middle-class family childcare tax credit of up to $8,000, among other things.&nbsp;</p><p>Targeted by both Democrats and Republicans over the years, the 1031's potential repeal could mean the loss of more than $50 billion for real-estate investors over five years, according to <a href="https://www.bloomberg.com/news/articles/2020-07-21/biden-takes-aim-at-50-billion-tax-break-in-shot-at-trump" data-analytics-module="body_link" data-analytics-post-depth="60" data-uri="cba162d8231ad2b21f455480384e3395">congress' Joint Committee on Taxation</a>.&nbsp;</p><p>And with the new balance of power held in majority by the Democrats across all three branches of government, the congressional approval a repeal would require seems more likely than ever under the Biden administration.</p><p>So likely, in fact, that <a href="https://www.marketwatch.com/story/10-biden-tax-proposals-that-will-sail-through-a-democratic-controlled-senate-and-how-to-prepare-for-them-11609958777'mod=mw_more_headlines">Marketwatch reported</a> that many of the Biden tax plans are expected to pass swiftly through the Democrat-controlled senate, real-estate tax breaks included. The new congress could swiftly squash not only the 1031 but other qualified business income deductions as well, on top of eliminating rules that allow quick depreciation write-offs and a $25,000 exemption for middle-income individuals' rental real-estate losses.&nbsp;</p><h2>Unwinding cuts made by the Trump administration&nbsp;</h2><p><img src="https://static2.businessinsider.com/image/5fce3035037cbd001861428b-2000/trump biden.jpg" border="0" alt="trump biden" data-mce-source="BRENDAN SMIALOWSKI,JIM WATSON/AFP via Getty Images" data-mce-caption="President Donald Trump, left, and former Vice President Joe Biden, right, appear at the October 22, 2020 presidential debate." data-link="https://www.gettyimages.com/detail/news-photo/this-combination-of-pictures-created-on-october-22-2020-news-photo/1229228819'adppopup=true"></p><p>Part of Biden's proposed housing plan includes rolling back changes implemented by the Trump administration.</p><p>In 2018, the Trump administration <a href="https://joebiden.com/housing/">discontinued the enforcement of the Affirmatively Furthering Fair Housing Rule</a>, a policy implemented under Obama. The rule required communities receiving specific types of federal funding to analyze local housing patterns and combat policies found to be consequently discriminatory. Biden plans on reimplementing it.</p><p>The Trump administration has also taken some power away from the Office of Fair Lending and Equal Opportunity, which is part of the Consumer Financial Protection Bureau. The division used to have the ability to, as Biden's website lays out, "enforce settlements against lenders found to have discriminated against borrowers." Once in office, the Biden administration plans on returning this power.</p><p>The Biden administration also plans on amping up funding to transitional housing, which provides populations in needsuch as those just released from prisona place to stay temporarily. The Trump administration has cut funding for transitional housing like halfway houses, Reuters <a href="https://www.reuters.com/article/us-usa-justice-prisons-exclusive/exclusive-trump-administration-reduces-support-for-prisoner-halfway-houses-idUSKBN1CI2ZA">reported</a>. Biden plans to not only 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."</p><p>While much of this work can be done via the executive branch and without congressional approval, a Democratic-controlled senate would be able to pass legislation to strengthen related initiatives.</p><p><strong>SEE ALSO:&nbsp;<a href="https://www.businessinsider.com/joe-biden-presidency-housing-policy-threatens-real-estate-investing-2020-11" >How Joe Biden's housing policy threatens real-estate investing</a></strong></p><p><strong>SEE ALSO:&nbsp;<a href="https://www.businessinsider.com/joe-biden-real-estate-policies-taxes-affordable-housing-2020-11" >A Joe Biden presidency could transform homeownership. Here are the winners and losers of his real-estate policies.</a></strong></p><p><a href="https://www.businessinsider.com/what-full-democratic-control-washington-means-for-real-estate-investing-2021-1#comments">Join the conversation about this story &#187;</a></p> <p>NOW WATCH: <a href="https://www.businessinsider.com/warren-buffett-modest-home-bought-31500-looks-2017-6">Warren Buffett lives in a modest house that's worth .001% of his total wealth</a></p>
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