New Reports Measure Impact of Tax Reform on Real Estate Investment and CRE's Impact on National, State Economies
Trump Administration Proposes Increased Vetting of Foreign Tourists; Visit U.S. Coalition Encourages International Travel as Key to Domestic Growth
Roundtable Weekly
April 13, 2018
New Reports Measure Impact of Tax Reform on Real Estate Investment and CRE's Impact on National, State Economies

Tax reform enacted late last year will cause investment in nonresidential structures to increase by an average of more than $23 billion from 2019-2028, and rise nearly $10 billion this year alone, according to new projections released Monday by the Congressional Budget Office (CBO).  (The Budget and Economic Outlook: 2018 to 2028, April 9)

CBO chartEffects of the 2017 Tax Act on Investment Through Changes in Incentives affecting Nonresidential and Residential Structures. Click to Enlarge— Page 119 of  full CBO Report

The new report isolates and analyzes the impact of recent tax reform legislation on different types of economic activity, including investment in structures. 

Tax reform’s positive impact on nonresidential investment stems from the corporate and individual rate reductions, as well as the new pass-through deduction.  Combined, these changes reduce the user cost of capital.  Cost recovery rules for structures were largely unchanged in the recent tax policy changes.

CBO projects tax reform will have a dampening effect on investment in residential housing: -$9 billion in 2018, and an average of -$13 billion annually from 2019-2028.  These numbers reflect the combined, net effect of a reduction in investment in owner-occupied housing and an increase in investment in rental housing.  Limitations on the deductibility of property taxes and mortgage interest are putting downward pressure on investment in owner-occupied housing.  Rental property investment, in contrast, benefits from the same tax reforms that affect nonresidential investment. 

As a nonpartisan arm of Congress, CBO's annual economic and budget outlook is widely watched by the private sector for indications of how recent policy changes are affecting the overall economy.

CBO: Trillion Dollar Deficits by 2020

According to the report, borrowing to fund tax cuts and increased spending will also send deficits soaring past $1 trillion in the coming years and increase the overall debt burden to 96 percent of GDP by 2028.  (The Hill, April 9)

Under the  recent $1.3 trillion spending agreement, defense and non-defense spending will increase by nearly $300 billion over the next two years.  (Roundtable Weekly, March 23)

Although economic growth is projected by CBO to rise to 3.3 percent in 2018 – much higher than the 2.6 percent recorded last year – the estimated growth rate will decrease to 2.4 percent in 2019, followed by a drop to an average of just over 1.7 percent for the subsequent eight years of the ten-year budget period.  (The Washington Post, April 10)

Deficits are also forecast to climb dramatically.  CBO anticipates a deficit of $804 billion in 2018 (43 percent higher than it projected just last June, prior to the tax bill and spending agreement).  The amount of debt held by the public will approach 100 percent of GDP over the next ten years, an amount far greater than any period since World War II.  (CNN, April 11)

NAIOP: Building Accounts for 18.0 % of National Economic Activity in 2017

According to the   NAIOP report , combining residential and nonresidential buildings,  as well as infrastructure, the total impact of construction spending (direct, indirect and induced) – accounted for 18.0 percent of all the nation's economic activity in 2017. 

In related news, a report recently published by the NAIOP Research Foundation shows that commercial real estate in 2017 supported 7.6 million American jobs and contributed $935.1 billion to the nation's GDP.  (Economic Impacts of Commercial Real Estate, 2018 Edition, NAIOP)

The annual study, authored by economist Stephen S. Fuller, Ph.D, measures the contributions to GDP, salaries and wages generated, and jobs created and supported from the development and operations of commercial real estate – and includes detailed data on commercial real estate development activity in all 50 states. 

According to the study, combining residential and nonresidential buildings (warehouse/industrial, office, retail, health care, entertainment, education, public safety, religious and lodging) – as well as infrastructure for water, sewer, highways and power, the total impact of construction spending (direct, indirect and induced) — accounted for 18.0 percent of all the nation’s economic activity in 2017.

“The importance of commercial development to the U.S. economy is well established, and the industry’s growth is critical to creating new jobs, improving infrastructure, and creating places to work, shop and play,” said Thomas Bisacquino, NAIOP president and CEO.  (NAIOP news release).

CRE as a driving force of national economic growth, as well as tax reform’s impact on the industry, will be a focus of The Roundtable’s April 25, 2018 Spring Meeting, which will feature  Senate Majority Leader Mitch McConnell (R-KY) and other key policymakers.

Trump Administration Proposes Increased Vetting of Foreign Tourists; Visit U.S. Coalition Encourages International Travel as Key to Domestic Growth

The State Department recently announced a proposal to require visa applicants to provide further extensive information on their social media presence, email addresses, and work histories when applying to travel to America.  Inbound tourists, business and convention travelers, students, and other non-immigrants would be subject to such “extreme vetting” policies proposed by the Trump Administration, along with immigrants seeking permanent U.S. residency.    

The Visit U.S. Coalition released “ America is Open for Business ,” a video highlighting international travel as a key driver of the health of America’s economy.

This newly proposed screening requirements would have affected nearly 15 million travelers last year alone from key long-haul markets such as China, India, Mexico and other nations that do not participate in the visa waiver program (VWP) with the U.S.  ( Visit U.S. Coalition, April 11.)  The new proposal would not affect travelers from countries granted visa-free travel status to the U.S. including most of Europe, Canada, Australia and Japan.

Under the proposed new requirements, U.S. visa applicants would be required to submit five years’ worth of personal information regarding telephone numbers, email addresses and details about their social media accounts on platforms such as Facebook and Twitter.  Fifteen years’ worth of physical address, employment, and foreign travel history would also be required.  (See State Department Form 5535.)  Currently, such information is only requested on a case-by-case basis when particular visa applications are flagged to warrant additional scrutiny due to terrorism or national security-related concerns.  The new proposal would require the additional information as a matter of course to supplement the already-exhaustive online visa form that tourists and other non-immigrants must currently submit when seeking U.S. entry.

“We should be encouraging international tourism and promoting policies that not only make the visa system more secure and accessible, but also streamline the process,” said Jeffrey D. DeBoer, President and CEO of The Real Estate Roundtable. “Increasing inbound international travel to the U.S. helps power the commercial real estate industry here at home through spending at hospitality, retail, attraction, health, and investment properties – all of which generate revenues to boost overall economic growth and create American jobs.”

Last month, the multi-industry Visit U.S. Coalition (which includes The Roundtable) released its policy agendaaimed at promoting and increasing inbound international travel to the United States. The coalition advocates for policies to regain the nation’s lost share of the global travel market by 2020, which will result in 88 million international visitors who directly support 1.3 million U.S. jobs and spend 294 billion dollars in travel exports – crucial to achieving the Administration’s economic goals. (Roundtable Weekly, March 2)

Following the State Department’s announcement of further intense screening for foreign inbound travelers, on Wednesday the Visit U.S. Coalition released “America is Open for Business,” a video highlighting international travel as a key driver of the health of America’s economy.

The State Department will be accepting public comments on the proposed enhanced vetting requirements until May 29.