With Donald Trump securing another term in the White House, the question looms: How will his administration’s policies shape the U.S. housing market? The anticipated lower interest rates, deregulation in housing development, and other supply-side strategies may bring relief for homebuyers and developers but come with mixed implications for the short-term rental (STR) market.
Lower Interest Rates and Home Affordability: A Boost for STR Investors?
For years, rising prices and high mortgage rates have prevented many Americans from entering the housing market. Trump’s administration has signaled a focus on lowering interest rates, which, as financial literacy expert Alex Beene told Newsweek, “have become one of the most significant barriers to homeownership in the post-pandemic years.”
A drop in mortgage rates would mean cheaper financing, which could make buying properties more affordable for STR investors, encouraging them to expand their portfolios.
But lower rates may also drive more people toward homeownership, competing with buyers for the limited inventory. This demand could result in price increases for existing homes, which Realtor.com Chief Economist Danielle Hale noted as a common outcome when rates fall. For STR investors, rising property values could enhance their investments’ long-term appreciation but may make acquiring new properties more challenging due to higher costs.
Easing Housing Regulations: Mixed Implications for the STR Market
Trump’s campaign promised to address “unnecessary” housing regulations, citing that these can add over $90,000 to the cost of new home construction. As Newsweek highlighted, deregulating housing development could benefit supply by incentivizing new builds and opening up federal lands. For STR investors, reduced regulatory constraints could mean a wave of new housing that increases inventory and rental options, particularly in popular vacation or emerging STR markets.
Yet, the potential for increased housing supply might introduce competition that tempers long-term price appreciation. While STR owners benefit from property value growth, rapid new construction in key areas could slow the appreciation of existing STR properties, particularly in high-demand regions where STRs have become popular alternatives to hotels.
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Inflation, Construction Costs, and STR Profit Margins
While Trump aims to curb inflation, Newsweek pointed out that certain policies, such as proposed tariffs and immigration reductions, could inadvertently fuel it. Hale cautioned that rising inflation could drive up costs, including those for property maintenance and renovations. For STR investors, inflationary pressures translate to higher operating costs, potentially impacting profitability. Materials and labor costs, particularly for renovations and property maintenance, could rise, squeezing profit margins and making it harder for investors to enhance their properties’ appeal.
Reduced immigration may also exacerbate labor shortages, as the Census Bureau reports that up to a third of construction workers are foreign-born. The resulting labor constraints could drive up construction costs, making it more expensive to renovate or expand STR properties.
Changes to Supply and Demand for Short-Term Rentals
With the Republican Party in control of both the Senate and potentially the House, Newsweek highlighted that Trump’s policies might effectively ease housing shortages, which have amounted to between 2.5 and 7.2 million homes over the past decade. Hale acknowledged that while the administration’s supply-side efforts could help alleviate the inventory crunch, demand-focused measures could have unintended consequences. For STR investors, an increased supply of homes, particularly in high-demand regions, could open up new investment opportunities. More properties entering the market may mean more options for conversion into STRs.
However, STR investors should also consider the implications of a housing market that may swing toward ownership as new housing becomes available. Lower mortgage rates and housing growth might encourage potential renters to consider buying instead, which could soften STR demand in certain markets. Investors might need to keep an eye on local trends to determine whether a shift toward ownership might impact STR profitability.
Potential for STR Expansion and Opportunities in Emerging Markets
Jeff Holzmann, COO of RREAF Holdings, pointed out that Trump’s background as a real estate developer could bring favorable lending terms and regulatory relief that benefit developers and investors alike. As STR investors look to emerging or underserved markets, less restrictive building codes and favorable financing options could spur expansion in these areas. Investors could find new STR-friendly regions where regulation is relaxed, creating opportunities to cater to growing vacation rental demands.
The potential deregulation of land use on federal properties also offers intriguing possibilities. If Trump’s administration makes federal land available for residential development, STR investors could consider expanding to nearby locations with attractive STR potential, such as those close to national parks or other tourist destinations.
Final Thoughts
As Hale emphasized, “The proposals to tackle these challenges… are likely to have a mix of good and unintended, but negative, consequences for the housing market.” For STR investors, Trump’s policies could open doors to increased financing and deregulation, offering favorable conditions for expanding STR investments. However, increased competition, inflationary pressures, and changing market dynamics might also introduce risks, particularly as supply rises and rental demand potentially fluctuates.
By monitoring regulatory changes, local market trends, and policy shifts, STR investors can adapt to capitalize on the benefits while mitigating potential downsides. Trump’s administration could create a more favorable environment for STR growth, but investors should stay vigilant in a market poised for significant shifts.
