Commercial real estate (CRE) transcends mere physical structures—it's a direct reflection of government policies crafted in Washington and city halls nationwide. Every budget allocation, tax revision, or tariff implementation sends ripples through the market, affecting investor confidence, construction expenses, and long-term property values. For savvy investors, understanding these governmental levers isn't just beneficial—it's essential for strategic success.
The Federal Budget: Setting the Stage for CRE
The federal budget serves as the government's financial roadmap, with its priorities directly influencing property markets. When infrastructure, affordable housing, or urban renewal receive increased funding, demand for multifamily properties often rises. A recent federal allocation of $32 billion to address housing shortages signals promising opportunities for new developments—even though practical impacts typically lag behind announcements.
However, budgets present both opportunities and challenges. Reductions in housing programs or infrastructure spending can delay projects, diminish rental assistance, and dampen investor interest. While Treasury forecasts may project optimism, prudent investors must contrast these projections with market realities. The key takeaway: monitor budget developments closely, but trust your independent research.
Tariffs: The Hidden Cost Driver
Though rarely featured prominently in real estate headlines, tariffs profoundly impact multifamily development and operations. Recent U.S. tariffs on critical materials from China, Canada, and Mexico have significantly increased the cost of essential building components in 2024-2025, compressing developer margins and forcing reevaluation of project viability.
The cascading effects include:
- Higher Construction Costs: Tariffs can add 10–15% to total multifamily project expenses.
- Rising Rents: These increased costs transfer to tenants, exacerbating affordability challenges. The National Multifamily Housing Council reports that construction cost increases have contributed to a 6.2% year-over-year rise in average U.S. rents as of Q1 2025.
- Reduced Supply: Cost increases and regulatory uncertainty often result in project delays or cancellations, tightening supply and driving up occupancy rates in existing properties.
- Maintenance Challenges: Tariffs affect ongoing maintenance and renovations of older properties, impacting owners' net operating income.
Tax Policy: Incentives and Headwinds
Taxation represents one of the government's most potent tools influencing CRE. Modifications to capital gains rates, depreciation schedules, or affordable housing incentives can transform the investment landscape overnight.
Tax Incentives: Policies like bonus depreciation and opportunity zones attract capital and stimulate development. The 2017 Tax Cuts and Jobs Act allowed accelerated depreciation, enhancing the appeal of multifamily investments. However, as these provisions approach expiration, their renewal status will significantly impact investor returns.
Tax Increases: Elevated property, capital gains, or transfer taxes can reduce investor enthusiasm and transaction volume. Investors must remain vigilant about proposed changes at federal and state levels.
Zoning, Land Use, and Local Policy
While federal policies capture headlines, local zoning and land use regulations often exert the most immediate impact on CRE. Cities that modernize zoning to permit higher density or mixed-use development can unlock substantial value. Conversely, restrictive zoning or lengthy permitting processes constrain development and limit housing supply.
Infrastructure Investment: Government investments in transportation, utilities, or public amenities enhance the desirability and value of nearby properties. The Urban Land Institute reports that proximity to new transit lines can increase multifamily property values by up to 20% within five years.
Sustainability Regulations: Many cities and states now mandate energy efficiency and green building standards. While these requirements increase initial costs, they attract environmentally conscious tenants and ESG-focused investors.
Interest Rates and Economic Policy
Government decisions regarding interest rates, inflation management, and economic stimulus directly affect CRE financing. In 2025, amid ongoing uncertainty about rate trajectories, investors are closely monitoring Federal Reserve and Congressional actions. Higher rates increase borrowing costs, reduce leverage potential, and can slow acquisition activity. Conversely, stimulus measures or rate reductions can revitalize demand and compress cap rates.
Foreign Investment Rules
Government policies on international investment also influence market dynamics. Restrictive approaches can limit capital inflows, while open policies may increase competition and pricing for prime assets.
The Bottom Line: Stay Agile, Stay Informed
Government decisions—whether manifested through budgets, tariffs, tax reforms, or zoning laws—are not abstract policy discussions but concrete levers moving commercial real estate markets. For multifamily investors, success will come to those who anticipate policy shifts, adapt quickly, and strategically leverage these changes.
At Carbon, we believe knowledge forms the foundation of intelligent investing. Our team continuously monitors policy developments at all levels, positioning our investors to navigate uncertainty and capitalize on emerging opportunities.
Ready to discuss your investment strategy? Schedule a consultation with our CIO, Michael Pouliot, to discover how we can help you navigate the evolving CRE landscape.
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