Potential Impact of Biden Policies on Site Selection and Real Estate Strategies
by King White, on Nov 18, 2020 10:38:36 AM
The election of Joe Biden, pending post-election litigation, will create opportunities and challenges for companies. President-elect Biden outlined his blueprint targeted items such as healthcare, trade, green energy and wages. However, the ability of the Biden administration to push its agenda through could be an uphill battle with a Republican-controlled Senate, subject to the results of Georgia’s runoff election. The following identifies some of the major policies and legislation to keep an eye on as you develop your site selection and real estate strategies over the next four years.
Minimum wage laws
Labor costs are typically one of the top location factors considered in the site selection process. Biden supports raising the federal minimum wage from $7.25 an hour to $15. The effect of an increase could give an estimated 30 million households higher pay and spending power; however, it could be offset by companies hiring fewer workers and passing along the added costs to consumers. These changes would have the biggest impact on employers with lower wage operations such as call centers, retail, unskilled manufacturing and warehouse workers.
Green energy initiatives
The Trump administration pushed for energy independence and eased the regulatory environment for the last four years. Conversely, Biden supports solar, clean and green energy which he estimates will create 10 million jobs in the United States. This shift to renewables could significantly hurt workers in the oil, gas, fracking and fossil fuel sectors. It could also create challenges for states such as Texas, North Dakota, Oklahoma, Colorado, Pennsylvania, West Virginia, Louisiana and New Mexico which have significant employment in the energy sector.
To help spur economic growth, Biden has a 10-year, $2 trillion infrastructure plan. The spending includes $400 billion on a new federal program for clean energy research and innovation, $100 billion to modernize schools, $50 billion on repairing roads, bridges and highways in his first year in office, $20 billion on rural broadband infrastructure, and $10 billion for transit projects that serve high-poverty areas with limited transportation options. He wants these investments to create high paying, union jobs. This could create challenges for private employers who can’t compete with union wages and benefits, so it will be critical to understand where these infrastructure projects might be located across the country to help you make more strategic site selection decisions.
Business and personal taxes
Biden intends to raise taxes by about $4 trillion over the next decade. He proposes eliminating loopholes for people earning more than $400,000, subjecting incomes above $400,000 to the 12.4% Social Security payroll tax, and phase out itemized deductions at incomes of $400,000. He also wants to increase the corporate tax rate from 21% to 28%, and tax capital gains and dividends at ordinary rates for incomes above $1 million. Biden is also calling for the elimination of 1031 exchanges which could significantly impact the real estate investment market. These taxes could negatively impact privately-owned, limited liability companies and corporate profits which, in turn, might slow capital expenditures which directly impact new site selection and real estate investment.
The global supply chain was massively disrupted by Trump’s protectionism trade policies and the COVID-19 pandemic. Biden wants to work more closely with U.S. allies in confronting China on trade. It is unlikely that he will roll back Trump’s tariffs on imported steel, aluminum, Chinese and European goods any time soon. Biden would likely demand the same concessions from China that Trump did which would include curbing massive subsidies to state-controlled firms, ending policies that force U.S. companies to transfer technology to Chinese counterparts, and opening its digital services markets to U.S. tech firms. These policies should continue to foster growth and investment in the U.S. as companies continue to recalibrate their supply chains and onshore operations.
COVID-19 stimulus package
Both Republicans and Democrats are supporting an additional stimulus package. Biden supports another federal bonus on weekly unemployment benefits, more aid for struggling small businesses and financially distressed states, and another round of stimulus checks to most households. Of these items, the weekly unemployment benefit bonus has been a huge issue for employers trying to retain employees in the $30,000 per year range. The unemployment benefits have incentivized workers to stay unemployed as they are making near the same amount as when they are working. Lower wage operations such as call centers, retail, unskilled manufacturing and warehouse workers have been impacted the most.
Pending the results of the presidential election litigation and the Georgia Senate runoff, the incoming Biden administration will have its hands full trying to push through these policies and legislation. The biggest hurdle will be the ability to get these approved by a Republican-controlled Senate. The odds are significantly against the majority of these getting approved which will create uncertainty for corporations and real estate investors trying to make site selection and real estate decisions.