How Government Policy Could Impact CRE in 2022

What could happen with taxes and Build Back Better.

In last week's Sales Pulse I mentioned one of the wild cards for real estate in 2022 would be the effect of government regulations. Here's what we know today regarding the proposed regulations.

A slim Congressional majority has made it very difficult to find the political will for another massive tax reform and spending bill. Nearly all of the proposals that were on the table early last year have largely fallen off and the Build Back Better Act is really kind of hanging by a thread.

Last year, there was a tremendous amount of potential change on the table, potential risk for real estate, a lot of potential changes to taxation of capital investment, capital formation, capital gains, long-term depreciation schedules, small pass-through businesses and just rates generally. And a lot was put on the table by the President and his initial budget – things like repealing or limiting like-kind exchanges, raising estate taxes, eliminating the step-up in basis of assets at death and other changes. As the process unfolded, there were continued concerns that these would have on not just real estate in particular. But now, it’s really kind of going back to the drawing board based on concerns and opposition raised by Sen. Joe Manchin.

At this point, it’s really going to require a new set of negotiations at the absolute principle level of the President and Senator Manchin, and maybe Senator Schumer. And that’s going to determine the outcome. There’s a lot of different ways and directions things could take at this point. Tax issues will also be back on the table, as Sen. Manchin appears flexible on raising rates for upper-income taxpayers, ending carrier interest, and changing corporate rates and individual capital gains rates.

In many respects, we’re kind of back where we started in 2021, which is a number of issues that are back at the negotiating table that could have a big impact on real estate.

The Pulse of the Market

Most areas saw fewer closed sales last week than prior weeks. Perhaps it’s a bit of a hangover from the holidays. Most other corresponding weekly stats were at levels similar to last year. There was a slight increase in listings in Orange County and Long Beach. Most other areas saw the number of active listings decline further. A lot of sellers are looking out of state for potential 1031 exchange properties that are giving them a higher return than properties located in Southern California. With RE/MAX Commercial’s market presence throughout the US, it would be to your benefit to contact me to get a look at what other properties are available if you are looking at repositioning your equity.