2024 Election Impact on CRE

Elections have consequences, and this year’s vote will be no exception for the CRE industry. Voting outcomes will shape important policy matters that impact this high-stakes sector beyond 2024. Brokers at Kidder Mathews, the largest fully independent commercial real estate firm in the Western US, weigh in on some of the issues that are on future ballots.

Housing on the Ballot

Most agree that housing affordability is a major concern, with the nation facing an estimated shortage of 4.5 million homes. This election, several jurisdictions will put forward measures aimed at addressing this issue.

California’s Proposition 33 (the “Justice for Renters” act) would allow local governments to expand rent control, giving cities the right to undo vacancy decontrol. Many property owners and investors have long argued that rent control inhibits new supply and hinders property upgrades. “This would significantly impact property values, as landlords would be unable to raise rents on vacant units to market rate,” according to David Evans, Kidder Mathews’ senior associate in Los Angeles.

“If I were president for a day,” Evans adds, “I would require any state or local municipality receiving federal funds for housing to remove rent caps for owners who renovate or otherwise improve their existing multifamily units.”

In Los Angeles, Executive Directive 1, which expedites approvals of affordable housing projects, has boosted much-needed volume. Yet, project scale and other building concerns have led to stricter limits from the mayor’s office, prompting familiar objection from commercial real estate professionals.

“The proposed changes to ED1 that would lower the max buildable units and potentially require developers to pay builders prevailing wage would disincentivize new residential development,” Evans says.

In Seattle, Initiative 137 would fund affordable “social” housing development through a 5% marginal tax on employers paying workers more than $1 million annually. If passed in February 2025, this could generate over $50 million annually for Seattle’s Social Housing Public Development Authority. “Seattle should not discourage large employers with high compensation packages from locating/remaining here,” says Jeff Huntington, first VP and shareholder at Kidder Mathews. “The city needs to do more to attract/retain those companies, not push them away.”

In 2023, high housing costs spurred Oregon to the country’s third most expensive place to live. “There need to be incentives for developers to build more affordable housing, not minimums and in-lieu fees that never make it back to helping low-income individuals efficiently or effectively,” says Kevin Joshi, Kidder Mathews SVP and shareholder in Portland.

California Commercial Concerns

There are several ballot measures in California that will impact the commercial real estate landscape – AB98, SB1103, and AB2904. Viewed by many in the CRE industry as an anti-warehousing bill, California AB 98 would place more restrictions on new and expanded logistics development, including replacing any homes removed for development at a 2:1 ratio, not allowing trucks to drive on any streets that would be considered residential, and requiring a buffer of 300 to 500 feet of any “sensitive receptors”. The bill has been sent to Governor Gavin Newsom’s desk for an end of September decision.

“In my opinion, AB 98 could have the most significant negative impact on industrial CRE,” says Eric Paulsen, regional president for Kidder Mathews. He also sees the California Supreme Court’s removal of the “Taxpayer Protection and Government Accountability” Act from the November 2024 statewide ballot as a “major blow” to the industry and efforts to restore the limits on state and local taxation through Proposition 13. “The added financial burdens on the supply chain could ultimately hurt consumers — the very group these policies aim to help.”

SB 1103, if signed into law, could disrupt commercial leasing, impacting both landlords and tenants. Property owners would be required to translate leases or letters of intent into the tenant’s primary language, such as Spanish, Chinese, or Tagalog. This could increase costs and create risks, as tenants may cancel agreements due to translation disputes, as well as make it difficult to recoup unforeseen expenses such as emergency repairs and insurance premium increases. Paulsen also highlights the benefits of AB 2904, which would extend the notice period for zoning changes from 10 to at least 60 days, allowing property owners more time to prepare for pending revisions.