Government policy and real estate values - by John Rynne

My May 13, 2025 NYREJ article was titled Public Policy Effects On Real Estate (Part 2). Much of the article was about tariffs, Department of Governmental Efficiency (DOGE), etc. outlining both positive and negative effects of government policies on real estate values. As an example, one of the negative effects on real estate was the downsizing of federal office space by the Trump administration. Recently the Trump administration has been very critical of the relative high interest rate policy of the Federal Reserve Board which harms real estate values. Since April 1^st the 10-year treasuries increased by 23 basis points when using July 24^th as a benchmark. President Trump insists that The Federal Reserve chair, Jerome Powell, is artificially keeping rates high because of some political agenda. However, Mr. Powell’s counterpoint is that inflation could ratchet up in the near future because of the unknown effect of a possible tariff war.

International financial guru, Steve Forbes, on WABC radio in New York recently agreed with President Trump. Forbes claims that interest rates are artificially high. He cited the example of Great Britain and the European Union (EU) having much lower comparable rates. According to Forbes the EU currently has comparable rates of approximately 2% versus 4%+ of the Federal Reserve. Many supply side economists would agree with Forbes that real estate values are significantly harmed by high interest rates. This has depleted untold billions of real estate value in the United States. These are monetary policy factors which are primarily the responsibility of the Federal Reserve.

On the fiscal side, the One Big Beautiful Bill (OBBB) had a substantial positive impact. Most notably the 2017 general tax cuts for individuals were preserved which were set to sunset this year giving taxpayers more income to invest in real estate. The key parts of the bill for real estate investors include pass-through entities made permanent. The most significant part of the OBBB is the reinstatement of bonus depreciation which allows for immediate expending of eligible property at 100% between January 20, 2025 through December 31, 2029. This applies to qualified improvements of non-residential real estate and some personal property used in the real estate rental business. Regarding residential real estate the basic mortgage interest rate deduction was preserved along with an increase of 300% in the Salt Deduction which benefits high-taxed states. Opportunity Zone benefits were extended which benefits primarily urban centers. However, there was a provision which also benefited rural communities. Rural lenders are able to exclude up to 25% of interest income on rural loans. For large investors who use REIT’s, the asset limit was increased for taxable REIT subsidiaries. Small real estate investors benefited by making permanent estate and gifts tax limits at $15 million and $30 million for single and joint filers respectively.

There is a positive note that the Trump economic policies are working. In June, the treasury showed a monthly surplus of almost $27 billion. That was the first time since 2017 there was a monthly surplus. There are some fiscal policy concerns of the One Big Beautiful Bill that continuing tax cuts will contribute to over $3 trillion to the national debt according to the Office of Management and Budget (OMB) over the next 10 years. According to Steve Forbes, OMB in the past has been wrong because they don’t take into consideration the multiplier effect of supply side economics.

Furthermore, the critics have underestimated the positive effects of the Trump administration’s energy policy. Currently, vehicle retail gas prices are over 15% less than the high during 2024 according to Gas Buddy. A barrel of crude oil is below $70 a barrel and declining. Alaska’s senator Sullivan recently stated because of the OBBB his state’s oil and gas production will skyrocket. This is important because energy by fossil fuels is still the stalwart of our economy including transportation manufacturing, electricity, heating/cooling, etc. This alone will keep inflation low. The tariff income will help offset the deficit. There is also an indirect benefit in which other countries will invest in manufacturing in the Untied States to avoid tariffs.

In summary, the real estate market, with the help of slowly decreasing overall capitalization rates, appears to be improving. As an example, the current relatively high mortgage interest rates, have strengthened the rental multifamily market. Housing prices especially in Upstate New York are increasing because of limited supply. General industrial throughout the Northeast remains strong with an improving retail sector while the office sector remains stagnant. In my next article, the effects on overall capitalization rates will be a focus relating to government policy.

John Rynne, MAI, SRA, is president and owner of Rynne, Murphy & Associates, Inc., Rochester, N.Y.