Joe Biden is President and the Democrats Control Congress. What Comes Next for CRE?

The Democratic majority will allow Joe Biden to get elements of his program.

By Les Shaver | January 20, 2021 at 06:50 AM

There is a lot of fear in the market about potential tax increases coming this year under the new Biden administration and a Congress controlled by Democrats.

But Richard Barkham, global chief economist and head of Americas Research at CBRE, doesn’t see this as an immediate threat.

“I certainly think that it would be unlikely that we would see those tax increases in 2021 because, although we’re optimistic about the economy, until this virus is defeated, it is still very much touch and go,†Barkham said on CBRE’s “The Weekly Take†podcast.

Barkham thinks the Democratic majority will allow Joe Biden to get elements of his legislative program through, including another stimulus that will provide a second boost to the economy. In the meantime, the $900 billion second stimulus, which is 4% of GDP, coming into the US economy will provide a shot in the arm early in the year, according to Barkham.

“It’s the second biggest stimulus in history, and that’s coming in Q1,†Barkham says.

Also, the vaccine rollout, which will provide a literal shot in the arm, should also offer an economic boost. “It may take us longer than the six months that we originally thought, but it’s going to be in place largely by mid to late 2021, and that means a revival in economic activity,†Barkham says.

Peter Linneman, principal and founder, Linneman Associates, thinks that Democrats will prioritize impeachment, social justice legislation, and environmental legislation. Tax legislation should fall behind these other priorities. “It won’t get radically redone,†he said on “The Weekly Take†podcast. “And I think the upper tax bracket gets tweaked, [and] the rest not radically redone.â€

Eventually, Barkham thinks some tax increases will be coming for the wealthier families in America. But he sees those tax initiatives coming later, probably in 2022. By then, the midterms will be on the horizon, which might dissuade politicians from raising taxes. But even if there are moderate tax increases, he thinks it is unlikely to derail economic growth in the United States.

With all of the stimulus money being pumped into the economy, inflation is a concern. Barkham could see inflation increasing 2% and 3%. But he doesn’t expect inflationary rates of 7%, 8% or 9%. “I do see inflation trending up from this point onwards, but not to dangerous levels,†Barkham says.

In fact, Barkham thinks the inflation that may hit the market could be useful for running the economy. In real estate, the 10-Year Treasury is used to price prime property or high-grade property. Barkham doesn’t think investors will see any real issues this year, though. “If anything, it’s an issue for 2022, 2023, but it is one that we will keep under review,†Barkham says.

While the political atmosphere has become very toxic in the US, Barkham thinks it will have little effect on the economy. “My general feeling is that probably politics is not really that material for the macroeconomy or for real estate when all of the debate and noise dies down,†he says.