Trump's Impact on Multifamily Investments
Lot's of news out there on the Trump Administration's potential impact on many sectors of the economy, but this piece from Axiometrics is focused exclusively on the Apartment market. Still so many unknowns, but a few major trends are starting to become apparent.
First, with planned infrastructure spending comes jobs, wage growth, and inflation. This is a mixed-bag for real estate investors: it is very good news for existing assets, but can make it more challenging to acquire new ones at favorable financing.
Second, higher wages and higher price inflation should mean there is a greater ability for owners to pass along higher rent increases. Particularly true for properties with large concentrations of fixed-income residents who likely have COLA increases in many of their benefit plans.
Third, this is all good news for retailers and restaurant operators - which should be good news for owners of retail centers.
Fourth, this will likely get the economy out of its current "funk" and get us back to more of a typical growth cycle. The Fed knows how to slow down an economy that is getting too hot - but it has been very challenging for them to address an economy that was growing too slowly and teetering on deflation.
Trump’s election will likely mean a return to the emphasis on supply-side economics popularized during the Reagan administration. The Gross Domestic Product is the sum of consumption, investment, government expenditures and net exports, and the new administration’s focus will likely be on investments and net exports (meaning trade deals).
Investment in infrastructure could increase productivity levels, which could boost national wealth and add jobs.
The re-patriotization of off-shore money by U.S. companies would bring more dollars home and increase GDP and job growth.
Monetary policy will be more data driven, and we expect the pace of Federal Funds Rate increases to ramp up starting mid-next year.
Despite the increase, the 10-year T-Bill rate should rise gradually to about the 3% range by the end of 2018. Even with this increase, apartment cap rates are still expected to remain low because of the high investor demand for apartment properties.
With all this in place, we expect average GDP growth of 2.5% from 2017-2020, barring an unexpected shock to the economy. About 10.3 million jobs could be created before the next presidential election, with annual average growth of 1.7% — exactly the rate of October 2016.
That’s our view. If Trump’s projections that his policies could increase GDP to 3.5%-4%, more jobs would be created, benefiting the apartment market.
And therefore, we anticipate the U.S. apartment market to perform well during Trump’s first term, with annual average occupancy of close to 95% and rent growth exceeding 3.0% from 2017-2020. New supply is expected to average about 330,000 units per year during the same time period. But higher GDP and job growth, as Trump predicts will happen, we could see rent growth and occupancy increase by an extra 50-100 basis points.