Home Building's Welfare State image

The budget outline President Donald Trump submitted to Congress this past Thursday is, he intends, a template for a dramatic change in priorities.

The document delivers on a campaign promise to reroute American government investment of resources in directions that differ sharply from prior administrations, and offers, he says, a "budget blueprint to make America great again."

For residential real estate developers, construction workers, building materials distributors, and home building enterprises, the impact of the plan--should Congress embrace it to a significant degree--would become clear only as its designed intent catalyzes a set of outcomes.

What happens between the unwinding, sunsetting, defunding, and re-appropriating resources for programs many Americans regard as critical to survival and the economic re-ignition promised by the budget makeover could be a painful period.

The promise to "make America great" would change hard-wired funding, regulation, and federal sponsorship programs out in favor of freer market forces.

The way many business leaders view the "blueprint"--including some we've talked to who run some of housing's bigger organizations--it's a big trade-off, from a byzantine complex of costly programs that don't seem to be working to, well, another way of recognizing and using money and time.

Corporate leaders like what the new template purports to do, which is to unleash economic growth that has been pent-up, and is therefore ready to spring forward, fast.

Marketwatch economics analyst Jeffry Bartash noted that the Business Roundtable of U.S. chief executives posted its "biggest increase since the end of 2009." Bartash writes:

The roundtable’s CEO outlook index leaped 19.1 points to 93.3 in the first quarter, marking the first time in almost two years that it’s exceeded the historic average of 79.8. Plans to hire and spend more on big investments surged.

The roundtable represents companies with over $6 trillion in annual sales and more than 15 million workers.

The Trump administration has already moved rapidly to reduce regulations opposed by many businesses. The White House also plans to cut taxes, spend more on public works and take other measures to make the U.S. a more attractive place to invest.

There are two big catches here that real estate, construction, and distribution interests must consider as they continue to manage their own investment of resources across present and near-future time horizons.

One concerns the difference between any "blueprint" and a real-world structure, with real materials, engineering, and construction. Trump's radical vision for an economic restructuring may make it into real-world, workaday policy in a profoundly revised form, bearing little resemblance to what he submitted. If Congressmen and women didn't need to get reelected, things might be different, but they do, so they're not.

The other concern is a core philosophical dilemma in this "America First" template. It's a dilemma in the home building, construction, real estate, and development business communities simply because benefits of the program may easily be offset by the same program's potential damages.

The Trump budget, as it is, stands true to the President's promise to reduce overall discretionary government spending, cutting out regulatory programs (EPA being the most dramatic example), and portending slashes in taxes, fees, costs-of-compliance, etc., which would all benefit builders and the network of businesses and trades that support housing.

Fivethirtyeight economics writer Ben Casselman writes:

A few things jump out right away: Military spending gets a big boost. So does the Department of Homeland Security, which would get $2.6 billion to begin construction of Trump’s signature border wall and $314 million to recruit, hire, and train new border patrol and immigration enforcement officers. The biggest cuts would come from the Environmental Protection Agency and the State Department, particularly foreign aid. Mick Mulvaney, Trump’s budget chief, has described it as a “hard power budget” that emphasizes military strength over diplomacy.

The dilemma--specifically for those businesses in the housing ecosystem--is the "protectionist" dimensions of policy that could limit or add costs to guest worker visa programs for construction's immigrant labor force, and would certainly add input costs for builders who source materials and products from across borders newly protected, either by physical walls or border tariffs on products grown, manufactured, mined, or otherwise produced outside America's boundaries.

So, housing's corporate titans--who stand to benefit themselves from this restated set of priorities--have to ask themselves whether the gains will translate the same way for prospective home buyers, and prospective workers and associates as well.

The costs for protectionism may be equal to or greater than the savings sought through deregulation, lower taxation, and a freer domestic market. Anyone doing the math on that?