Executive Summary
- Joe Biden has been declared the winner of the 2020 presidential race following record voter turnout and a delay in results from some states.
- Control of the U.S. Senate and President-elect Biden’s ability to deliver on his priorities will depend on the results of two Senate runoff races in Georgia on January 5, 2021. Should Republicans retain control of the Senate, Biden’s ability to enact his program would be constrained.
- A key outstanding issue is the amount of additional fiscal stimulus that will be enacted to support the economy. We expect a relief package of less than $2 trillion under a Republican-controlled Senate. The amount of stimulus could be higher, and implemented in one or two phases, if the Democrats gain the Senate majority.
- Full Democrat control of the executive and legislative branches would also likely mean major changes to trade policy, taxation, discretionary spending, housing, education, health care, environmental regulation and broader regulatory policy. All of these would have implications for commercial real estate.
The Biden Agenda & Real Estate
Biden’s platform calls for $5.4 trillion in additional spending over 10 years. If enacted, expanded health insurance coverage likely will drive demand for medical space closer to the consumer and spur the conversion of some retail space. In addition, $1.6 trillion for infrastructure and R&D should benefit office and industrial real estate demand. Housing policy initiatives, such as tying federal funding to zoning changes to spur affordable housing development in suburban locales—as well as increased affordable housing subsidies—could present unique opportunities for residential real estate.
Figure 1: Biden Spending Priorities
Source: Penn Wharton Budget Model, University of Pennsylvania, September 2020.
Note: For PWBM's long-term macroeconomic modeling, all of Biden's provisions for new spending on education, social security benefits and health care (spending and drugs) are assumed to continue past 2031. Some housing assistance provisions and all infrastructure and R&D provisions end in 2031. Paid leave is not incorporated into PWBM's macroeconomic modeling.
Biden has called for nearly $3.4 trillion in additional revenue over 10 years. This would be primarily achieved by partially repealing the 2017 tax cuts and further increasing income tax rates on incomes over $400,000 per year, taxing capital gains as ordinary income for households with income over $1 million, additional payroll taxes and higher taxes on corporations. If implemented, the tax law changes could lower consumer spending in the luxury retail segment and some areas of the housing market. The increase in corporate taxes may impact capital expenditures by businesses and wage and job growth, but this could be offset by a more stable global trade environment. If pursued vigorously, Biden’s environmental agenda would have implications for commercial building operating costs to meet higher energy efficiency standards.
Figure 2: Biden Plan Revenue Sources
Source: Penn Wharton Budget Model, University of Pennsylvania, September 2020.
The presidency and a Democratic Senate would enable Biden to enact large portions of his agenda. Most immediately, a larger federal stimulus package to support the economy would boost real estate demand in the near term. This provides some upside potential to CBRE’s 4.5% GDP growth forecast for 2021. More aid to state and local governments could reduce pressure to raise taxes on real estate. However, the popular 1031 tax-free exchange program would be threatened and luxury retail, energy, finance, defense contractors and tech could face headwinds from tax and spending policy changes and increased regulation.
If Republicans retain the Senate, the Biden agenda will be checked and have a more subdued effect on the broader economy and commercial real estate. A more limited fiscal stimulus package would be enacted, with less state aid and the prospect, at some point, of higher state and local real estate taxes. On the other hand, the 2017 personal and corporate tax cuts would remain in place. Like any president, Biden will also have power to influence spending priorities and the regulatory environment and to enact trade policy. The potential for less trade friction, especially with U.S. allies, may be helpful as the economy pulls out of the pandemic-induced recession. Overall, markets seem to view “split government” favorably and this scenario largely supports CBRE’s forecast of 4.5% growth in 2021.
Figure 3: U.S. GDP Forecast
Source: CBRE Research.
The Bottom Line
The economic recovery is well underway—as evidenced by the October jobs and Q3 GDP reports—and the election will not alter this dynamic. The magnitude of impact on commercial real estate will depend on which party controls the Senate. Should Democrats take control, there is some near-term upside to CBRE’s 2021 forecast due to the likelihood of additional fiscal stimulus and potentially less urgency for local real estate tax increases. Should Republicans retain control of the Senate, we still expect a level of fiscal aid that supports CBRE’s economic growth forecast.
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