The Azucena Take: The 118th United States Congress and the Investment Real Estate Market
With the run-offs having come to an end, votes counted, and winners confirmed - we now have a good idea of how the 118th United States Congress is going to look like. On a national level, this might be a win for the investment real estate market. However, it also depends on one's state and local elections.
That is why it helps to look into how the 118th United States Congress could be seen as a win for the investment real estate market.
Normally, we don't like to get into politics but this is one of those topics that is going to impact your investments. That being said, it's also important for you to be involved as the political landscape could benefit or harm your investments.
2022 Election Results
Makeup of the 118th United States Congress will be the Republican Party controlling the House (222 seats). In the Senate, the Democrats will be in control (51 seats*). However, it's a very slim divide. Democrats are going to have 213 seats in the House while Republicans are going to have 49** seats in the Senate.
This means Congress is going to be in a gridlock, thus nothing or very little will change. For real estate investors, this is a good thing.
*Three are independent but have mostly voted alongside the Democrats as a whole.
**Currently, 48 since Ben Sasse of Nebraska is set to resign on January 8th to serve as President of the University of Florida. Nebraska is a safe state for Republicans, so they will likely hold this seat.
Gridlock and the Market
Why should real estate investors be happy with a gridlocked congress?
This is one of those "the more things change, the more they stay the same" moments. We have newly elected representatives who will be legislating for the next two years. Given how tight the control is, nothing will change. That means no new tax laws or reforms and no fiscal policy changes. Everything will stay the same. That means an investor has a good idea of what the market will be like for the next two years.
When looking back, we have seen how the investment real estate market reacts to a gridlocked congress. Since 1980; when Congress has been divided, the average return on investments has been 10.8%. When a single party has been in control, the average return on investments has been 8.3%.
So what is the reason for this? Most of it has to do with uncertainties regarding how the economic landscape would change. For example; when the Tax Cuts and Jobs Act of 2017 were being debated, investors were hesitant as they were unsure how this will affect their holdings. The same mindset was also present when the Affordable Care Act was being debated for the same reasons.
Be aware this is not going to be 100% accurate and there have been some shake-ups. From 2019 to 2020, the average return during the 116th Congress (a divided congress) was 4.7%. But from 2021 to 2022, the average return during the 117th Congress (one-party control) was 14.2%.
What it Means for Investors?
The big takeaway for investors should be that very little is going to change in the next two years. Unless there is a major crisis; do expect very little policy change. While little will change on the Federal Level, be aware of the markets on a State and Local level. That is why you should be working with an advisor who understands the local political landscape and could guide you through it.
The Azucena Take provides an inside look into the investment real estate market using the research done and data collected by Marcus & Millichap