Donald Trump Executive Order on Affordable Housing

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Read this the other day regarding Donald Trumps recent executive order on examining the affects of regulatory barriers at the Federal, State, local levels on the availability and development of affordable housing.

The order states that the council endeavors to encourage State, local, and tribal governments to reduce regulatory barriers to the development of affordable housing.

Which in turn, aims to increase the supply of affordable housing.

I asked myself what effect will the have on the REI space and my first thought was that the increase in supply will cause rent and values to slow down or possibly even stagnate all together.

Then I considered the question, is affordable housing even really affordable without government subsidies?

To say, will reducing regulatory overhead really drive down the cost of new construction so much that private owners will be able to make adequate returns while charging affordable rents?

The White House states that more than 25 percent of the cost of a new home is directly related to federal, state and local regulations and up to 42 percent for some new multifamily constrictions.

If the above is factual, then the a dramatic increase in low priced rentals should occur and drive supply up. If demand is met or exceeded, then this policy could have the potential to increase vacancies, lower rents and reduce property valuations for lower end real estate. 

if not, then the policy (if abused), may only serve to speed up the development of high-end rentals and consequential leave the low to mid end market largely unscathed. 

Curious what other BP members think about this? 

Of all the housing trends discussed on BP, the only undeniable one is the severe lack of affordable housing in the country (and this is not referring to starter homes).  There are many markets where the wait list is in years for low income housing availability.

  • Rents have dramatically outpaced wages
  • Baby boomers are living longer
  • Corporate income tax rate cut makes affordable housing tax credits less valuable
  • Rising labor and material costs makes it expensive to build
  • Land is expensive in metro markets; so, it's only economical for developers to build at the high end
  • Hurricanes have driven down the availability of construction labor and driven up the cost
  • NIMBY regulations

The shortage is so severe that it may never be resolved in my lifetime.  I would not be concerned about reduced rents or increased vacancy in the low income sector at a macro level any time soon.

I am not concerned.  Any time the government is involved things are not great.  Too much red tape.  Adding to that is the younger generations (no offense meant) are fluid.  Rentals are going to be fine.  Just the opinion of a dumb Okie!

Here in Texas, even though locals are extremely reluctant to admit it, we are very similar to California. This is mainly due to two different factors: the demographics and the mere size of the economies. If the state economies were ranked against that of all the countries in the world, California would be the 5th largest and Texas would be the 10th. One in five people in America live in these two states, and one in four children are educated in these two states. 

It seems the main reason for California being much more expensive is because of the excessive regulation. Texas naturally has very little red tape and is much more lenient with businesses involved in construction of new property. 

Another main reason that Texas is much less expensive is because it has higher tax rates on property. When you are paying 2 - 3% of your property's assessed value every year instead of .79% like in California, investors are disincentivised to speculate on property because of the cash drag in the form of a higher tax. Investors have to clear a higher percentage per year in rents to make up for the higher tax. Property taxes are not popular, but they are proven to be highly effective to reduce speculation.

The third reason for the inflation of property values is extremely low interest rates. When interest is a minimal portion of your mortgage payment every month, your buying power will be naturally higher. 

There are many more factors involved than the three that I mentioned, but to me, there is ample evidence that those are the most influential. Since The Trump administration seems to want to lean on the Fed to reduce rates again and is extremely opposed to higher taxes no matter what - all in the shadow a giant trade conflict with the entire rest of the world which is pushing up input costs - I have very little faith that property will become more affordable. All signs point to the opposite. 

It seems to me that we will be taking one step forward but three steps back.