How the Federal Budget Can Affect Commercial Real Estate

March 27th, 2013 by Tatyana Levin

Yet again we are facing a showdown between the White House and Congress over the budget, and most notably over spending cuts.

 

If they do not reach some kind of compromise by March 1st, there will be a sequestration which will result in spending cuts in both the defense budget and in discretionary spending.  All in all, these cuts will likely affect nearly every industry, including the real estate industry.

 

Currently the government invests money into commercial real estate.  They build things from bridges to offices, and the more development and renovation an area gets, the more property prices rise because of improvement.

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They say that location is everything in real estate, so once money stops being invested into a location, the value of real estate, both commercial and residential, stops increasing or at least increases slower, and this is bad for potential investors.

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Not only are areas not going to be renovated as much as they once were when government money was available for renovating neighborhoods, there is also less money to build new buildings which affects both the commercial real estate industry and all the industries that are tangentially related to it like construction.

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The sequestration will even get in the way of existing projects and contracts, meaning that the impact of the cuts will begin immediately. 

 

But remember that there is still time for Congress and the President to settle budget issues and prevent the sequestration from taking place which would act as mutually assured destruction for both sides of the political spectrum.  So let’s hope they can agree before contracts are thrown out because of lack of funding and potentially profitable neighborhoods go abandoned because no one can build any bridges for people to get there.

 

Tatyana Levin

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