The potential impact of the 2024 U.S. election cycle on housing policy and financial regulation could be enormous as Republicans seem poised to take control of the presidency, the Senate and the House in January.
To get a sense of the magnitude of what changes could be looming ahead, Dodd Frank Update spoke with two experts from the CRE Finance Council, which released a 2024 Election Scenario Analysis pontificating on the numerous potential outcomes of the three concurrent elections.
CRE Head of Regulatory Affairs and Sustainability Sairah Burki and CRE Head of Legislative Affairs David McCarthy noted how either administration’s ability to make an impact in economic policy or the regulatory environment hinged heavily on whether their party took or maintained control of one or both of the houses of Congress.
By coming out ahead in the three key political arenas, Republicans are likely to have a relatively clear road to enact major tax reform and curtail regulations in the financial marketplace, as well as in other areas, they said.
“Certainly, with the Republican trifecta, I think tax reform is the foremost priority coming up, and the ability to accomplish that through reconciliation makes it not necessarily a smooth process, but a politically possible process from a partisan standpoint,” McCarthy said. “I think a reauthorization of a lot of the key provisions of 2017 Tax Cuts and Jobs Act is probably at the forefront there, with maybe some tweaks around the edges. We’d expect Republicans to use the reconciliation process to the extent that spending and policy priorities intersect, and we’re exploring what those would be.”
There is only so much Republicans will be able to accomplish through reconciliation, he continued. One of the main priorities he is looking at involves the tax treatment of real estate, which McCarthy said his organization planned to advocate for under either administration.
“We have tax priorities in terms of making sure real estate is not disfavored, not raising costs on real estate, which we were going to advocate for in any scenario,” he said. “With the Republican take over, I don’t necessarily see anything from a tax perspective that is likely to be either targeted at real estate or a negative to real estate, like a raising the capital gains rate.”
Even with a Republican majority, the Senate will need to act in a bipartisan fashion for certain meaningful changes to be enacted in terms of regulation, he added, point to the chamber’s success in passing S. 2155, the “Economic Growth Regulatory Relief and Consumer Protection Act,” which proposed to provide financial institutions a tailored regulatory regime with respect to compliance with the Truth in Lending Act and other federal requirements.
McCarthy anticipates Republicans will focus much of their deregulation efforts on disapproving regulations through the Congressional Review Act, as they did under the first Trump administration, with one notable example being the Consumer Financial Protection Bureau’s (CFPB) final rule banning forced arbitration clauses in financial agreements.
Among the possible targets for disapproval during Donald Trump’s second term is the proposed Basel III Endgame capital requirements, which has been the subject of strong criticism from the financial sector and Republicans in Congress. Burki noted the proposed rule may be especially vulnerable since the three banking agencies – the Federal Reserve, Federal Deposit Insurance Corp. (FDIC), and the Office of the Comptroller of the Currency (OCC) – continue to disagree on what updates to make to certain provisions in light of industry feedback.
“The Basel III proposal is currently in a state of limbo since the three agencies have not been able to agree to issue a reproposal – mostly because of the FDIC. It is getting very weedy,” Burki observed. “But one of the board members, Rohit Chopra, who is also the director of the CFPB, believes the reproposal doesn’t go far enough. We have been very focused on this banking agency proposal from a broader macroeconomic perspective and also the potential impacts to commercial real estate finance. There are a few different possibilities you could certainly see.”
Burki said the Basel III proposal could be “quashed” following the Trump administration’s expected leadership changes at the Fed, OCC, and FDIC. FDIC Chair Martin Gruenberg is expected to be removed for cause, given the allegations of workplace misconduct at the agency under his watch, and Acting Comptroller Michael Hsu could be replaced as well, she noted.
Fed Chair Jerome Powell is the only one of the three expected to be able to serve the remainder of his term as chair, set to expire in May 2026. His term as a member of the Fed Board of Governors does not expire until January 2028.
“So, you could see the FDIC leadership change. You could also certainly see Trump remove Michael Hsu from acting comptroller and replace him with another acting controller, which would not require any confirmation,” Burki explained. “And the Fed is a little bit more difficult, of course. I believe Trump could replace at least two board governors in his next term. But even more because it’s not like every governor stays for their full term. What he could do that would be more impactful, that people are prognosticating in the news and everything is possible, is demote Fed Vice Chair of Supervision Michael Barr to a standard Fed governor, and nominate someone else to be the vice chair.”
Although the banking system largely opposes much of the Basel III proposal, Burki noted that other jurisdictions are also looking to reduce Basel capital requirements so doing nothing with respect to Basel could put the U.S. at a competitive disadvantage.
“It’s not entirely sure that the next administration would necessarily want to completely scrap it,” she said. “We could certainly see them take the reproposal and run with it even further, reducing capital requirements even more. So that could be a significant shift there.”
McCarthy and Burki also mentioned the potential for interesting “shenanigans” at the Securities and Exchange Commission (SEC), including the expected resignation of SEC Chair Gary Gensler. Both experts noted Gensler will not be obligated to resign but there have been indications they’ve heard that he likely will do so “pretty quickly” after Trump takes office, allowing him to appoint a Republican chair instead. This move could put the SEC’s already vulnerable climate disclosure rule in further jeopardy of being voided.
“I think there would be some immediate changes. A lot of questions that we’ve been getting is regarding the climate disclosure requirements, which are currently held up in court anyway, but a new SEC chair could decide to start the process of withdrawing the proposal,” Burki said. “The new chair also has the power to get involved in litigation and instruct the SEC lawyers to basically agree to some sort of settlement, and kind of move away from the rule that way.”
With housing affordability being viewed as a more bipartisan issue than others, changes to the Federal Housing Finance Agency (FHFA) and the Department of Housing and Urban Development (HUD) may be somewhat less sweeping in terms of policy priorities but there will still likely be a shift in focus to the status of Fannie Mae and Freddie Mac coupled with a change of leadership as well.
“We think the Trump administration would kind of swing back to being laser focused on trying to move them out of conservatorship,” Burki said. “Affordable housing will continue to be something I think Republicans want to focus on. They’ve certainly talked about it during the presidential campaign. We have heard them talking about selling federal lands or building new housing, etc. But I’m not sure it’ll be as much of a focus as it was under the Biden administration.”
McCarthy said housing will likely present opportunities for bipartisan action in Congress in concert with the regulators, as affordability, rates, and supply-and-demand are universal concerns. However, there are vastly different ideas about the best approaches to tackling these issues.
“I think that overlap in the Venn diagram in terms of increasing supply is something that’s pretty universal among housing advocates, both on the right and the left,” he said. “There are some trip wires in different areas there, but I do think that you could see something come together that alleviates maybe some of the regulatory burdens which largely exist at the state level.”
McCarthy expects to see legislators in Congress work on legislation testing whether it is politically viable to move the government-sponsored enterprises (GSEs) out of conservatorship, noting it is a “thorny issue” but one the first Trump administration took on under former FHFA Director Mark Calabria and one that is likely to be “priority No. 1” for the agency during Trump’s second term.
“They need to do it in a way that does not disrupt funding for housing, whether market rate or affordable housing, and make sure that their political allies on Capitol Hill are along for the ride,” McCarthey said.
Burki and McCarthy agreed on there being a strong likelihood for immediate change in the FHFA’s mission, with the Trump administration dialing back some of the agency’s tenant protections for consumers in the multifamily housing space, including rent control through the GSEs.
McCarthy said he does not expect Calabria to be tapped to reprise his role as FHFA director but that it “would make sense” if he was to replace Chopra as director of the CFPB. Calabria mentioned the possibility of becoming CFPB director during a CRE Finance Council conference in March and at October Research’s National Settlement Services Summit (NS3) in May, during an interview with October Research Chief Knowledge Officer Mary Schuster for the “Keys to Real Estate” podcast.
Echoing the analyses of many economists, Burki noted certain policy proposals Trump has presented, such as authorizing mass deportations of undocumented immigrants, could actually add to affordability issues because the construction industry relies heavily on this population segment for inexpensive labor. She also reiterated widely the agreed-upon consensus that levying large tariffs on foreign-made goods, especially those form China, would likely cause inflation to rise again.