Presidential candidates, McCain (left) and Obama (below): neither has made clear their programs for the US economy
With financial chaos all around them and the election looming, you might be forgiven for thinking that now would be a good time for US presidential candidates Barack Obama and John McCain to reveal their detailed economic policies. But you would be disappointed.
With Wall Street in turmoil, the candidates preferred to repeat the notoriously vague policy statements they have stuck to since the spring.
Throughout the long campaign, both Obama and McCain have kept the language strong and the details thin, with the result that few economists have much idea of how US economic policy could change after the new president is inaugurated on 20 January.
Instead, in a series of speeches designed to win the public debate – and with it the presidency – Democrat Obama has blamed world financial turmoil on the long influence of Reaganomics and the Bush family’s laissez-faire approach to government. He calls for stricter control of the US financial sector.
Financial crisis
While Obama was careful not to blame his opponent, he implied that McCain had no serious plans to deal with what he called “the most serious financial crisis since the Great Depression”, claiming instead that he would “ignore economic problems until they spiralled into crises”.
Meanwhile, McCain blamed “greed and corruption” on Wall Street and promised to clean it up.
Little wonder, then, that property analysts in New York, San Francisco and Chicago agree on only two things. The first is that, given the unfolding financial crisis, the new president is going to smile on any source of foreign capital. The second is that the election will probably lead to a slight strengthening of the US dollar, which could make European investment in US real estate relatively less attractive.
Borja Sierra at Savills Granite in New York says that exchange rates will need watching as the new president settles in. “Whoever wins, there will be a slight strengthening of the dollar, and that makes US real estate less attractive for some investors,” he says.
Simon Mallinson, head of US services for the IPD, agrees.
“There is the potential that investors may unload assets before they begin to record losses, increasing the pool of available properties,” he says.
Asked if the Lehman Bros collapse and AIG nationalisation makes the US paradoxically more, rather than less, attractive to US investors, Mallinson says: “Yes, sort of.” This is, he adds, thanks to the abundance of real estate buying opportunities.
Both campaign teams will also be well aware that, in today’s edgy climate, players in US real estate markets prefer bigger, well-funded overseas investors to smaller, dubiously funded, domestic investors.
Neither candidate will want to turn off the tap of foreign investment.
Experts point to a series of deals in which overseas capital has kept the market moving. Foremost among them was the summer refinancing of a £33.5m loan for the owner of the iconic 34-storey Lipstick building on New York’s Third Avenue, where Argentine investors played a prominent role.
Mallinson says: “It is unlikely that any administration would put in place frameworks that would stopmuch-needed foreign investment into the US. Just look at where the capital supporting major US financial institutions has come from in recent months – the Middle East, Asia and Europe. Anything that affects this would have serious effect on the US economy.”
As for whether an Obama administration is better for commercial property than a McCain administration, everyone agrees that the advantages of one over the other are marginal, at best.
Steve Collins, New York-based managing director at Jones Lang LaSalle’s international capital group, says: “There used to be wholesale change of economic policy with a change of administration, but that’s now largely gone by the wayside. Perhaps the Republicans will put more money into the military, which will help certain sectors of the economy, and perhaps the Democrats would put more into healthcare, which will help the east coast from Massachusetts to North Carolina. But the differences really are marginal. Right now, it all remains to be seen.”
Sierra takes, if possible, an even dimmer view of the candidate’s potential to make a difference, foreseeing risk in both. His ultimate conclusion is that it probably does not matter who wins next month.
“The immediate effect to look for, if you are a real estate investor, is in taxes,” he says.
“Both candidates are likely to raise taxes, although you would never discover this from reading their speeches. The consequence is that local investors have no preference on which of Obama or McCain would be the most friendly. And, besides, the implication of who is in the White House is minimal because neither has announced anything that amounts to a clear economic policy.
“But a big change is needed in the US economy, and neither has made public plans that have obvious effects on the market. We may see a reduction in corporate taxes by McCain, which should have immediate effects on corporations’ willingness to reinvest – but it’s unclear whether he really has intentions.”
Viewing the East Coast turmoil from San Francisco, Cushman & Wakefield executive managing director of research, Maria Sicola, takes a laid-back view. “It’s difficult to draw any relationship between who is in the White House and real estate markets – and neither candidate is talking much about taxation or regulating development. What matters more is what happens in the real economy, the value of the dollar and the capital markets.
“The US office market is slowing down, but with strong fundamentals. The supply side looks OK, with a lid on construction, high occupancy rates, good tenants and historically high rents, even if they do come down a bit. Our main concern has to be what happens to the dollar.”
From the industrial and commercial powerhouse of his base in Chicago, Mallinson sees little reason to cheer either side.
He explains: “Each candidate has been relatively mum thus far on exactly what steps they would take to move the economy towards recovery. Until that happens, it is difficult to say what will happen and if it will matter.”
In any case, the US economy should be back in tolerable health before too long, says Mallinson.
“Given the events of the past few weeks, it doesn’t look like we have hit bottom yet,” he says. “However, because this downturn has been driven by just two sectors – housing and financial services – while other sectors remain relatively strong, it is hard to imagine that a recovery would take that long.”
The US economy grew by 3.3% in the second quarter of 2008 – substantially above the original estimate of 1.9% – while exports are up and imports are falling. It could be that it does not matter who is elected president next month because the economy may, slowly, heal itself.
Wall Street: commentators are wary of saying which US presidential candidate will make the biggest difference economically
How the candidates’ plans weigh up
Obama’s grandly named Plan for America offers tax cuts for the middle classes and promises to end tax breaks for companies that move jobs overseas. He promises to raise the minimum wage and invest in manufacturing.
The McCain campaign document – Jobs for America: The McCain Economic Plan – is even lighter.
McCain, who has admitted that economics is not his strongest subject, confines himself to promising support for small businesses and fairer taxes.
In interviews, he has praised large-scale tax cuts as a way to stimulate the economy, and pledged to cut corporation tax rates from 35% to 25%. There will also be tax breaks for research and a promise to participate in global trade talks to reduce trade barriers.
Analysis of each side’s plans has inevitably produced conflicting outcomes. According to some commentators, McCain’s plan for tax cuts would lead to a budget deficit of titanic proportions with worrying consequences for inflation. Yet, according to conservative-leaning think tanks such as the Manhattan Institute, Obama’s tax hikes would hit wealthy New Yorkers, pushing the city – the US economic powerhouse – into peril.
For most big investors – and almost all in the real estate sector – it will be business as usual, whoever wins on 4 November.
