The Fiscal Crossroads: How the Trump Bill Could Reshape Housing Markets and Investment Strategies

The Trump administration's “One Big Beautiful Bill Act” has ignited a fierce debate over its dual impacts on fiscal policy and housing markets. At its core, the legislation seeks to expand affordable housing incentives while simultaneously raising the federal deficit to alarming levels. For investors, this presents a paradox: policies that could boost affordable housing supply might also trigger higher mortgage rates, reshaping the real estate landscape. Here's how to navigate the opportunities and risks.

Housing Provisions: A Double-Edged Sword

The bill's housing provisions aim to address affordability through two main channels:
1. Expanded Low-Income Housing Tax Credits (LIHTC): By increasing LIHTC allocations and reducing bureaucratic hurdles, the bill could unlock 527,700 new affordable rental units by 2035. This is a lifeline for developers and real estate investment trusts (REITs) focused on affordable housing.
2. SALT Deduction Expansion: Raising the State and Local Tax (SALT) deduction cap from $10,000 to $40,000 will disproportionately benefit homeowners in high-tax states like California and New York. This could stabilize or even lift home prices in these regions, favoring REITs with exposure to coastal markets.

However, the bill's restrictions on regulating rent-setting algorithms threaten to exacerbate housing inequality. Critics warn that unchecked AI-driven rent hikes could erode affordability gains from LIHTC, creating a “high-rent, high-supply” dynamic that favors landlords over tenants.

Fiscal Deficit: The Hidden Cost of Growth

The Congressional Budget Office (CBO) projects the bill will add $2.4 trillion to the federal deficit by 2035. This borrowing surge could push interest rates higher, as the government competes with private borrowers for capital.

With mortgage rates already near 7%, further increases could dampen housing demand, particularly among first-time buyers. This creates a tension: while LIHTC-driven affordable units may rise, higher rates could slow broader market activity. The result? A bifurcated market where affordable housing thrives, but luxury and suburban markets stagnate.

Investment Implications: Targeting Resilient Assets

The bill's provisions suggest three actionable strategies for investors:

1. Affordable Housing REITs: Focus on REITs specializing in LIHTC-backed projects, such as Camden Property Trust (CPT) or Equity Residential (EQR). These firms benefit directly from tax incentives while serving a growing demand for low-cost rentals.

2. High-Tax State Exposure: REITs with portfolios concentrated in states like California (e.g., Boston Properties (BXP)) could see sustained demand as SALT deductions shield affluent homeowners from tax pain.

3. Risk Mitigation: Avoid overexposure to regions reliant on federal housing subsidies. Instead, prioritize companies with diversified revenue streams or those in areas with strong job markets, such as tech hubs in the Southeast.

The Regressive Trade-Off

The bill's regressive tilt—3.9% income loss for the poorest 10% versus a 2.3% gain for the top 10%—poses a critical risk. Cuts to Medicaid and food assistance could weaken demand from lower-income households, even as affordable housing supply grows. Investors should pair equity exposure with defensive plays, such as Treasury Inflation-Protected Securities (TIPS), to hedge against inflationary pressures from rising deficits.

Conclusion: Navigating Fiscal Uncertainty

The Trump bill's housing provisions offer a rare growth vector in an otherwise constrained fiscal environment. Investors who bet on affordable housing REITs and high-tax state assets stand to profit from LIHTC-driven development. However, the looming interest rate hikes and income inequality risks demand caution. Success will hinge on balancing exposure to subsidized housing growth while hedging against the bill's broader economic headwinds.

For now, the real estate market sits at a crossroads—one where fiscal policy could be both a catalyst and a constraint.