Even before the start of Donald J. Trump's presidential campaign, the Trump brand was in lights across the nation. From the original Trump Tower in New York City to the Trump International Hotel in Las Vegas, it is a name, a brand and a font recognized by nearly everyone. Long before his inauguration, the new U.S. president had made himself one of the most visible — if not the most visible — real estate developers in the world.
President Trump may be the new commander-in-chief, but he is unlikely to forget his long history in real estate. While the world prepares to learn how his policies will affect the larger economy, real estate developers and contractors are similarly focused on the impact his policies will have on the construction industry. Is the president’s (likely) pro-development stance cause for excitement in real estate circles, or is caution warranted? In the following, we explore subsets of the construction industry and the potential impacts of the new administration on these sectors and issues.
An additional note: It is no exaggeration to state that Mr. Trump's presidency and many of his official actions, to date, have been contentious. Our goal is to provide a clear-eyed and nonpartisan review of the new President's possible initiatives.
The nation’s infrastructure was a major talking point for both candidates during the presidential campaign. There is no doubt it is aging and requires investment. So perhaps it was no surprise that Mr. Trump had something to say about infrastructure investment during his acceptance speech on the Wednesday after the general election:
“We are going to fix our inner cities and rebuild our highways, bridges, tunnels, airports, schools, hospitals. We're going to rebuild our infrastructure, which will become, by the way, second to none and we will put millions of our people to work as we rebuild it.”1
This is a statement that will likely excite many contractors. It also appears to be a strategy that will build on former President Obama’s policies. It was estimated that the controversial American Recovery and Reinvestment Act of 2009 (a.k.a. the Recovery Act or “stimulus package”) would ultimately cost $831 billion between 2009 and 2019, the bulk of it consisting of investments in infrastructure, education, health and renewable energy.2 Mr. Trump has estimated that projects launched under his direction will inject $1 trillion into infrastructure investment using federal tax credits to generate private-sector involvement.3
Republicans who often opposed Mr. Obama’s infrastructure spending may now be reluctant to support Mr. Trump in similar efforts. Private-sector involvement may be key to overcoming Republicans' prior reticence to spend government money or increase taxes. However, if the private-sector involvement turns out to be illusory, his plans may be stymied by Congress (regardless of which party is in control).
The Obama administration was effective in reducing risk in lending practices and protecting consumers via the Dodd–Frank Wall Street Reform and Consumer Protection Act.4 It also helped homeowners in difficult financial situations refinance their mortgages through the Home Affordable Refinance Program (HARP).5 As a result of affordable mortgage rates, employment gains and income improvement, the single-family home industry has steadily recovered from the recession.6
Despite this, homeownership — which was 63.5 percent during the third quarter of 2016 — is at its lowest level since the 1960s.7 Constraints do not appear to be on the demand side of the equation; they are on supply, where builders are faced with shortages of lots, labor and lending.8
Since demand is high, this may be an area in which the new administration can affect the single-family home industry. Mr. Trump has said, “No one other than the energy industry is regulated more than the home-building industry. Twenty-five percent of the cost of a home is due to regulation. I think we should get that down to about two percent.”9
Mr. Trump has also made clear his affinity for the residential real estate industry, noting that his father was a home builder: “A home builder taught me everything I know. There is no greater thing you can do. If you can build a home, you can build anything.”10
Taken at face value, Mr. Trump's statements made on the campaign trail paint a positive picture. Combined with the current state of the industry, it may provide his administration with the opportunity to spur new-home construction. As of this publication, however, no clear blueprint for the industry has been put forward.
Mr. Trump believes the energy industry is the most heavily regulated industry in the nation. And his stated goals for deregulation will likely affect this industry, as well.
The Obama administration invested heavily in renewable energy.11 Mr. Trump, on the other hand, has appointed several cabinet members with strong ties to oil and gas, and he has been abundantly clear in his support for coal. Does this spell dire straits for the renewable energy industry?12
The answer to this question is, as yet, unclear. At a campaign rally in California, Mr. Trump told supporters, “I know a lot about solar — I love solar. Except there’s a problem with it. It’s got a lot of problems with it. One problem is it’s so expensive.”13 Whether he is correct in his assessment is one question. Whether he will invest in solar power to bring its deemed high price down or scrap the tax credits the industry relies on is a separate — and still outstanding — question altogether.14 If Mr. Trump does cancel the tax credits, some analysts expect that the industry will turn to the U.S. states or even overseas for the subsidies it relies on.15
Mr. Trump’s prior claims that climate change is a hoax perpetrated by the government of China may suggest where he stands on this issue; if taken at face value, it may indicate that he is less likely to promote the renewable energy industry and more likely to defer to advisors with interests in oil and gas. However, some believe that the industry has sufficient momentum to maintain itself. Economics, instead of presidential policy, are now the driving factor behind the industry and, with companies already investing billions of dollars in renewable energy, the momentum may be too great for Mr. Trump to have a meaningful effect.16 He may not promote it, but he may not be able to stop it, either.
In the more traditional energy sectors, oil and natural gas have seen an increase in production over the past decade as a result of better fracking technology, despite efforts by the Obama administration to slow down the extraction of resources via this controversial method.17 The Trump administration is expected to open up federal land, previously identified by the Obama administration as off limits, for oil and gas production.18 If this becomes the case, the result will likely be a boon for the industry and any construction that comes with it.
Environmentalists are preparing for battle against the Trump administration. But how will the president's perceived negative attitude towards environmental regulations affect the construction industry? Deregulation would no doubt make real estate development less expensive and, therefore, easier and more appealing. And if Mr. Trump opens up federal land for oil and gas production, against environmentalists' wishes, construction will likely accelerate.
On the campaign trail, Mr. Trump discussed some of his potential stances on foreign policy, including trade policy and immigration. With respect to trade policy, he has indicated that the United States should withdraw from the Trans-Pacific Partnership (TPP) and renegotiate — or even withdraw from — the North American Free Trade Agreement (NAFTA).19 If these new policies impede trade or place more control on imports, materials prices may increase.20
Mr. Trump has taken a similarly hard stance on immigration, repeating his plan to erect “an impenetrable physical wall” on the border with Mexico and issuing an executive order limiting entry into the United States of people from certain countries.21 While the latter order is currently less likely to play a role in the construction industry, the former may have a significant impact. Labor is already at a premium and, in an industry that relies heavily on a foreign-born workforce, strict immigration policies may raise wages and increase the cost of construction.22
As with all of the issues listed previously, the construction industry must take a wait-and-see approach to the effects of Mr. Trump’s foreign policy stances. Legal and illegal immigration were strong, regular themes during his campaign and surprises are unlikely in this area, in particular.
It is possible that some of Mr. Trump’s policies and promises will become a boon for the construction industry. Deregulation may reduce project costs and increase the availability of funding for homebuyers and contractors alike.23 Tax cuts for the wealthy may mean that there will be more money to build projects.24 And his promises to spend large amounts of money on infrastructure could result in a flood of projects for contractors.25
But if Mr. Trump follows through on his immigration policy, the current labor shortage will likely get worse and the costs of available labor will increase.26 Similarly, strained relationships abroad may increase the cost of materials.27
There is certainly reason for hope that Mr. Trump's real estate experience will spur growth in the construction industry. Although he has an opportunity to effect significant change, we may have to wait for several years to see how his policies ultimately reshape the construction industry.