Democrats Win the Midterms: What It Means for the Housing Market

Dave:
The 2026 midterm elections are over. What do the results mean for real estate investors? Democrats took control of the US House and the Senate on Tuesday, which means the federal government will be divided when the new Congress takes office in January after two years of full Republican control. And for most issues, that would mean it’s less likely any legislation at all would pass before the next presidential election in 2028. But housing is different. Housing affordability has become such a massive problem for so many people across the entire political spectrum that it’s one of the very few remaining topics on which Democrats and Republicans could plausibly work together to pass new legislation. How could that affect you, your home value, your tax burden, and your real estate portfolio? I’m breaking it down today.
What’s up everyone? I’m Dave Meyer, chief investment officer at BiggerPockets. Today, I’m giving you my quick take on the 2026 midterm election results and what they mean for the US housing market. We are in an era of pretty extreme partisanship. So a divided government means that there is a low probability of significant legislation getting passed on most issues. That’s just unfortunately the world that we live in right now. But as I mentioned in the intro, housing is an exception. We just saw this when the 21st century Road to Housing Act became law July 11th, 2026 after passing 85 to five in the Senate and 358 to 32 in the House. So along those lines, let’s talk about the Road to Housing Act because this really was one of the first and most significant federal housing laws that we’ve seen in a really long time and it could set up what happens next.
I’ve done some shows on this. I’ve talked about it in the past, but in short, I think it’s a pretty good law. Generally speaking, I’m a fan, not because it’s some magical silver bullet that’s going to fix the many problems that we have in US housing. It’s certainly not going to do that because frankly, most housing policy happens at a state and local level. But I do think there are things in this bill that are a step in the right direction. A lot of federal housing policy or even ideas about housing policy go on the demand side. It’s like how do you lower mortgage rates? How do you give credits or incentives for people to buy? And those things can help at least in the short run. I have questions about if they really work in the long run or if maybe they just create artificial demand and that pushes up housing prices more and then things become unaffordable again.
But the Road to Housing Act really did and does focus on the supply side of things. And if you want a long-term solution to housing affordability, you have to do something on the supply side. And the Road to Housing Act does that mainly by focusing on removing some of the existing governmental barriers to building new homes. And I do think this could be sort of a template or maybe just the beginning of future legislation that gets introduced because people are finally recognizing that you need to address the supply side. So we don’t know exactly what will happen, but we’re seeing where politicians and policy is heading, at least from this existing bipartisan bill that passed. And the Road to Housing Act worked on the supply side mainly by focusing on removing some of the governmental barriers to building new homes. So first, expedited environmental review for projects with HUD funding.
This could be a big one in my opinion. This is one of the biggest hurdles that developers have to clear. Environmental reviews, depending on where you live, could take months. They can actually even take years. That adds a tremendous amount of risk to real estate developers and people who are building new housing units. So expediting that lowers the risks and makes more deals pencil. Another example is pre-approved building designs to speed up permitting. I love this idea. It’s something that they do in a lot of cities, and I think if they could roll this out on more state and national levels, it makes a lot of sense. Basically, governments approve building designs so you don’t need to go through this very costly and very time-consuming process of getting a permit. If you just pick one of the pre-approved designs, you could just get building a lot faster.
Another one I really like, this sounds kind of weird, but they remove these chassis requirements for manufactured homes. Basically, there was a lot of impediments for people who get manufactured or prefab homes. They weren’t able to get the same financing from the government that traditional homes would. I don’t really think that makes sense. I think actually, given how much the cost of building has gone up, the idea of making prefab and manufactured housing cheaper is a really good idea. There are also other programs that would make it easier to get a mortgage on a home under 100K, updates to income limits on some government housing programs and more flexibility for community banks. So again, a lot of this is focused on the supply side, and it was passed in July when President Trump signed the Road to Housing Act into law, and most of it hasn’t even gone into effect yet.
That will not happen until 2027 as designed by the law. Congress does still need to appropriate funds for some of the programs in the bill, which will be a future negotiation that we’ll have to keep an eye on, but that’s all law already and won’t change after this midterm election. And one more note here is that the big headline coming out of this bill was the so-called institutional investor ban, right? That was being talked about a lot on the news and in all of the media. And that provision did come to fruition, but I don’t think people fully understand what was actually in that. A lot of people are talking about this big institutional investor ban, and there was something like that, but there is a ton of caveats. The provision said that owners of real estate who own more than 350 homes can’t buy more on the open market, and they actually implemented penalties on this.
So if you go and do that, the penalties are up to a million dollars per home or three times the purchase price if they do that. But again, that doesn’t explain the whole story. There are many exceptions to that law. So for example, even if you own more than 350 homes, you can still buy properties on the market if you are renovating to rent. That’s what most real estate investors do. At least in our world of mom and pop retail real estate investors, we’re usually renovating to rent. And so that is still allowed from institutions. So we will still face competition. I say we, I don’t know if any of you own more than 350 units. Congrats if you do, single family homes, that’s a lot. So I just will say that if we’re thinking about is there still going to be competition from institutional buyers, I would say yes from the renovate to rent.
They are also allowed to do rent to own, so lease option kinds of things. They’re allowed to buy from other institutions so they can trade houses between each other and they can still do build to rent. So there really isn’t that big of a change here, at least in my opinion. Can they go out and buy a bunch of new homes from a builder? No, but they can still be active on the existing home market for renovate to rent. They could still buy from other institutions. They could still do build to rent. And so they’re still going to be a force in the housing market. I think people often overestimate how big a force they are. They own about two to 3% of properties nationwide. Sure in certain markets they own a lot more and you might feel that if you live in one of those markets, but nationally, not as big a player as most people think.
In fact, retail investors like you and me own way more of the rental housing market than institutions and it’s by a lot. So all that being said, we may see some reshaping of how big Wall Street companies participate in the housing market when that law goes into full effect in January, but they won’t be totally removed from the equation. And remember, these institutional investors own only about two to 3% of all single family rentals in the US anyway. Basically, the entire institutional investor ban concept, really more of a bipartisan political pandering move because it’s popular to say Wall Street drove up the housing prices than a meaningful change you’re going to feel in the vast majority of local markets. Anyway, that’s where we stand currently on federal housing policy. Both parties care about it a lot and they took a first step under Republican controlled Congress by passing the 21st Century Road to Housing Act over the summer.
So what happens now after the 2026 midterms? We’ll get into that right after this quick break.
Welcome back to the BiggerPockets Podcast. I’m Dave Meyer. Today I’m giving you my quick take on what happens now after the midterm elections, other than hopefully all of us no longer getting all those text messages from politicians in states you don’t even live or vote in telling you to vote for someone. What happens now though is first we get a lame duck session with Congress and the White House still aligned under full Republican control until the new members of Congress are sworn in during January. We don’t know yet if Republicans will rush to pass any legislation during this time, but government funding runs out on December 11th, which could cause another government shutdown. God, I’m so tired of these. Another government shutdown if no new funding bill is passed. And it’s also been suggested that Republicans could try to pass a third reconciliation bill during the next five weeks.
And this is speculation, but the one rumored provision in that bill that investors should keep an eye on during this time is a change to the tax code that would index capital gains to inflation. So let me explain this a little bit. When you invest capital and not like your work, but you’re investing money, you pay a capital gains tax, it’s usually about 20%. When you sell an asset like a home, that taxable gain is the sale price that you sell it for minus what you paid for the house plus any improvement. So let’s just say you sell it for 500,000, you bought it and renovated. All in, you were in for 300,000. You have $200,000 of capital gains. If your capital gains tax is 20%, that’s $40,000. But if this inflation indexing were to become law, your taxable gain would be lowered by whatever portion of that difference was created by inflation.
So basically, if they said that actually you’re all in for 300, but $100,000 of your gain is because of inflation, rather than paying that tax on $200,000, you would be paying that tax on $100,000 having your tax bill. So we don’t know if this reconciliation bill will happen or if inflation indexing would even be included, but it has been discussed by a number of elected officials and influencer commentators and would be a significant benefit for buy and hold investors if it became law. So that’s the lame duck period. After that, once we have a new Congress in January, obviously any single party bills would be off the table until 2029 because we have a divided government. But as I said earlier, we have just seen a bipartisan housing bill pass in July, so it could happen again. This is one area of the government that people do seem to agree, thankfully, and we could see some progress here.
On October 5th, the bipartisan Build America Caucus released the Build More Agenda. They’re a group of about 40 House members and they were influential in negotiating the Road to Housing Act that we just discussed. So they have a track record of getting bills passed and work explicitly toward crafting legislation that work in a divided government. Right now, this is only a proposal from the House. It’s not even a real bill yet, but some of the ideas, and it would have big impact on investors, so it’s something to keep an eye on it. I’m going to mention a few of these and then we will of course have more coverage if the Build More agenda starts progressing through Congress next year. The first thing to keep an eye on is “right to build zones.” This is where cities could voluntarily designate areas where housing gets approved automatically if it meets standardized zoning and permitting rules.
In exchange, the federal government would pay the city for each new home built above its recent construction pace. The agendas example is $10,000 per home, and that’s about what cities typically charge developers in impact fees. So for small developers, that could mean far less time and uncertainty in getting projects approved. Again, this is something focused on the supply side. It’s why I said earlier that this Road to Housing Act could be sort of the beginning of a bigger push to build more housing. The second provision to keep an eye on is financing for ADUs. I really like this one. The agenda proposes a federally backed second mortgage for building an ADU. An ADU is an accessory dwelling unit. If you have a single family home and you have a lot and it’s permanent and zoned, you could build a second unit, like a small home either as a full-time rental, a short-term rental unit for your parents or your in-laws or whatever.
And currently, it is really hard to get financing for that. It’s not covered under an existing mortgage, but the agenda proposed a federally backed second mortgage for building an ADU based on the unit’s future value and very important here, rental income. That is huge here because a lot of times if you go out to traditional mortgage lenders, they do not count your rental income for something like this, but this would give you a federally backed second mortgage that would count on that future income. And critically, you get to keep your existing mortgage rate. So you wouldn’t have to refinance if you have a two, three, 4% mortgage. And if you want to build an ADU, but you don’t need to refinance and raise the cash and you don’t have to refinance your mortgage. It’s a much better way to finance ADUs, and I think that could pick up ADU construction either by real estate investors like all of us or even by normal homeowners, and that could increase the supply of housing.
The third one, this is a big one because I think we don’t talk about this enough, but this one is aimed at making building materials cheaper. Building materials are going up way faster than the pace of inflation. It was just in the Wall Street Journal the other day talking about how much faster building materials are going up faster than inflation. The cost of materials for new homes rose 42% over the last five years, and tariffs alone are estimated to add nearly $11,000 to the cost of a new single family home. The agenda calls for targeted tariff relief on residential construction materials and for exempting affordable housing projects from Buy America rules, which can add 15 to 25% to their costs. That would matter to anyone building or doing heavy rehabs. Personally, I’m a fan of this. I am not a fan of across the board tariffs, so targeted tariff relief to make housing more affordable.
I like that idea. Now these three ideas, again, they’re the right to build zones, financing for ADUs, cheaper building materials. They’re just a couple of the housing proposals in the build more agenda, but as you can see, it’s focused around pulling some of the levers that the federal government does control to make it easier and cheaper to increase housing supply. And all of this is very similar to how Congress approached the 21st century Road to Housing Act, which passed by really overwhelming margins during a Republican controlled Congress in July. So we’ll of course keep monitoring that and let you know if this progresses from a set of ideas into actual legislation. There is one other piece of potential legislation before the 2028 election that I want to touch on, but we’ll get to that right after this break.
Welcome back to the BiggerPockets Podcast. Today we’re talking about the implications of the midterm elections. We’ve talked about where we stand federally, but there’s one more thing I want to talk about, which is the 2028 tax bill. Yes, 2028, two years from now. Several of the notable tax breaks from the one big beautiful bill that was passed back in 2025 are scheduled to expire after 2028. They’re doing that by design and the deductions for tips, overtime and seniors are all scheduled to go away in 2028. So we are likely to see some kind of negotiation in Congress and with the White House on extending those during 2028. And that is two years from now, so it’s hard to predict what could happen in a future tax bill, but I want to highlight one provision that could be folded in. The More Homes on the Market Act has 155 House and 23 Senate sponsors.
That’s a lot. The House co-sponsors are mostly Democrats. The Senate co-sponsors are mostly Republicans showing that there is bipartisan support for it. And although this won’t pass on its own, there is speculation that it could become part of a bigger future tax bill. So we should pay attention. What this act proposes is raising the capital gains tax exclusion on the sale of a primary home from 250,000 to $500,000 for single filers and from 500,000 to a million for joint filers. What this means, if you haven’t heard of this, basically if you own a home and you live in it for at least two years, or at least two of the last five years, if you go to sell that home, you are exempt from capital gains tax for up to $250,000 if you’re single or up to $500,000 if you’re married. This is an incredible tax benefit, one of the best tax benefits in the entire tax code.
If you live in a home, let’s say you bought it for $200,000 and then you live in it for a long time, and let’s say it’s worth $750,000 after 30 years or something like that, you would in theory have a $550,000 capital gains tax that you should pay. But the existing law excludes you if you’re married for $500,000 of that and you’d only have $50,000 of capital gains tax to pay, so you pay $10,000 taxes on that massive gain. So that’s been in place for a long time, since 1997, nearly 30 years. But the number that is deducted, those 250,000 and $500,000 limits, those thresholds were set in 1997 and they have not been raised since. This bill would index those thresholds to inflation going forward. About one in three homeowners, nearly 29 million households have more equity than the single filer exclusion protects. Supporters say the tax hit keeps longtime owners, especially seniors, from selling and freeing up inventory.
So passing this could be a step towards easing the lock and effect we could see across the housing market. Note that this only applies to primary homes, not investment properties, and it would cost the federal government an estimated $46.4 billion in tax revenue. So this is far from a sure thing, but one worth watching. I’ll just mention personally, I don’t think this would free up that much inventory. I do not think that this is really the reason why seniors aren’t selling, maybe a little bit, but I don’t think this would be a massive change in the housing market. But if this applies to you, it could be a major tax break that you could get depending on how much equity you have in your home. So definitely worth keeping an eye on. All right, so that’s what we got for federal housing policy. But as I mentioned at the top and is so true, most of what happens in the housing market depends on what happens on state and local levels.
The federal government, they’re working on some stuff, but most zoning, most criteria, most of how much gets built really depends on local things. So I want to just talk about a couple of the state referendums that were on the ballot this week that are interesting and relevant to housing. I think you’ll all find these interesting as well. So there’s one in North Carolina that passed a constitutional amendment that will require lawmakers to pass a law limiting how much local governments can increase the property tax revenue they collect. The amendment itself doesn’t set the limit, so legislators will have to negotiate that in 2027, but anyone who owns property in North Carolina will at least gain more certainty over how much their property taxes could rise once that secondary law is passed. And this North Carolina law I think is representative of a lot of pushback on property taxes.
They’ve gone up a lot in recent years. A lot of people are very frustrated by this, but again, that is not set by the federal government. Those are set by state and local governments. And this law in North Carolina is saying the state should have more say and it should limit how much local governments can increase property tax revenue. So that’s one example of what states are doing. The next is in Florida where they passed a constitutional amendment dropping the cap on yearly assessment increases for rental properties from 10% to 5%, but that caps assessed value, not tax rates. So if local governments raise rates to just make up for that lost income, rental owners could still see their bills go up. So I just don’t think this one is going to be super impactful, but if you’re in Florida, keep an eye on this one.
There were a few other small ballot measures passed around the country, so double check if anything significant happened in the states where you own property, but those are the biggest ones to be aware of. So that’s our episode for today. Just to recap, we now have a divided government where the chance of legislation, any big legislation, is generally going to be lower, at least based on what we’ve seen from the government over the last decade or two, but housing has proven one exception. We have seen examples this year that there is bipartisan support to help make housing more affordable. And we’ve talked about some of the ways that Congress could move to make housing more affordable and encourage building in the next couple of years. We will keep an eye on all of this and update you as things go. The second thing to remember is look at your state and local level.
I read off a couple of things that happened in states, but what happens in housing, the stuff that really matters most is at the local level. Check with your state or your city and see what has changed, whether it’s in terms of zoning, in terms of taxes, that stuff all really matters for real estate investor and you as an investor, it is your job to keep on top of that stuff. So make sure you have an eye out for it. That’s our episode for today. Thank you so much for watching this episode of the BiggerPockets Podcast. I’m Dave Meyer and I’ll see you next time.