Commercial Real Estate Policy Challenges: Navigating an Environment of Increasing Taxes and Regulations

Key Findings:

• Commercial real estate regulations and tax rates are increasing across the U.S. From the perspective of real estate investors and developers, there is significant concern about what will come next. One effect of increased regulation in major markets could be the migration of capital to secondary markets, a trend we are already seeing in the multifamily sector.
• In addition to stricter regulations around commercial real estate, many U.S. jurisdictions are increasingly looking to high-end commercial property as a source of more tax revenue, especially as state and local budgets are crunched in the current economic crisis. However, raising taxes may have unintended consequences.
• Rent control is gaining traction as a solution to the housing affordability crisis, but there is ample evidence that, in the long term, rent control does not accomplish the policy goal of making housing more affordable, as it results in a reduction of housing supply. Ultimately, more supply is needed to combat affordability concerns. The most expensive rental markets in the U.S. tend to be those with complicated and arduous permitting processes. One solution to this supply problem may be upzoning.
• There is no doubt that taxes and regulations often present challenges for investors and developers involved with commercial real estate. However, there are also some regulations and tax policies that are beneficial for the commercial real estate industry. These include municipal incentives, short-term rental regulations, and development incentives such as the federal Opportunity Zones program.

The report concludes with action steps for commercial real estate owners, investors and tenants in light of these changes.