Interest rates and optics in an election year

Interest rates and inflation may be top of mind for multifamily investors as election day approaches, but the Federal Reserve bases its decisions solely on economic factors, not political ones.

The independence of the Fed to manage monetary policy without regard to political considerations is fundamental. The Fed has consistently and repeatedly said its decision to adjust policy rates will be based on evidence that inflation is moving sustainably toward its long-term 2% average target to help maintain this independence and avoid any charges of partisanship.

The last meeting of the Federal Open Market Committee (FOMC) before the election is September 18. The proximity to the election and recently published quarterly economic projections will add attention to the meeting. But even after September 18, rates could be volatile as the presumed outcome of the election could influence the future of inflation.

Potential housing regulation stability

While increased funding for multifamily housing is possible, it’s largely dependent on Congress. Regardless of the next president, however, it’s unlikely housing funding and policies will be rolled back. 

“We’ve increasingly seen a frustration with the cost of housing across party lines,” said Nick Luettke, Associate Economist at Moody’s CRE. 

While both parties want more affordable housing, they’re likely to take different approaches. If either party gains control over the House of Representatives, Senate and White House, housing policies could see significant changes. 

It’s a different story with a divided government. “In that case, federal housing policies will likely remain the same, with the level of political polarization in Congress impacting commercial real estate policymaking more than the presidential election,” Luettke said.

The election and economy’s impact on infrastructure spending

“With either outcome, there will likely be continued federal investment via the Infrastructure and Jobs Act into roads, bridges, power and grid, passenger and freight rail, water infrastructure, housing, broadband, airports and more,” Chambless said.

It’s important to consider the role of Congress here. “Infrastructure spending will likely remain fairly stable should a split Congress and president be elected, with greater expansion or cuts being easier should either party successfully sweep,” Luettke said.

Aside from Congressional election outcomes, infrastructure spending often picks up during economic downturns in response to rising unemployment. So there’s also a possibility either administration could pour funding into infrastructure, depending on the economic landscape. 

Such continued investment could benefit commercial real estate. Take modular housing, for example. “Modular construction’s factory-like approach really drives costs down,” Brooks said. “The negative is it’s extremely expensive to move modular housing.” 

“Infrastructure spending is likely to depend more on macroeconomic health and whether deficit reduction or a stimulus is more necessary for a struggling labor market,” Luettke said. 

Real estate and strategic supply chain spending 

Luettke noted that infrastructure legislation related to national security and supporting supply chains is the most vulnerable to geopolitical developments. It’s also the most likely to be favored across administrations and congressional outcomes. 

Both potential administrations appear to be acting tough with China on trade. Homeshoring and nearshoring are likely to continue regardless of election results. Both efforts can help commercial real estate and multifamily reduce development timelines and costs.

“In the last eight years, conventional wisdom toward free-trade agreements has nearly disappeared,” Luettke said. “Instead, supply chain choices have increasingly been viewed as part of broader strategic relationships combining domestic protectionism of key industries with security,” he said. Both potential administrations are likely to continue this approach.

“There could be a number of impacts to global supply chains, including the prioritization of domestic investment, implementation of trade tariffs, and rebalanced and renegotiated trading relationships,” Chambless said.