The implications of an overwhelming Democratic midterm victory reverberated through markets in the second half of last week, reflecting skittishness among investors and business leaders over fears about the impact on the largest driver of today's economy: data center growth.
Despite these initial shocks, there is a quiet expectation that a Democratic Congress will help bring calm to a period of significant economic volatility stemming in part from the unpredictable policymaking that has emerged during President Donald Trump's second term.
“Maybe ‘uncertainty’ was the buzzword of the last year, and hopefully ‘certainty’ will be the buzzword going forward,” said Jeff DeBoer, CEO of the Washington, D.C.-based trade group The Real Estate Roundtable. “We're much more certain that we're not going to wake up every day and have another wild fluctuation in some sort of policy.”
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That semblance of certainty won't be a panacea, however.
Major relief from the ubiquitous issues for commercial real estate today, including higher costs, low labor availability and expensive debt, is unlikely to come from the new Congress because those issues are closely tied to Trump's executive actions and powers.
But housing affordability, the economy more generally and data centers were on the ballot in races around the country, where the results have set the stage for a string of policy debates that will hit landlords and investors.
“If you look back in history, there are a number of examples where a great amount of very positive legislation has been done when there's divided government,” DeBoer said. “I'm not one who says, ‘Put your feet up, nothing's going to happen, we're in for gridlock.’ I think there's going to be some significant legislation.”
Stock traders initially reacted positively to the midterm results, with all three major indexes climbing, but the mood changed Thursday. A massive sell-off focused on tech stocks but spread marketwide sucked $2.5T in market value out of the Nasdaq and pushed the index into correction territory. By Friday, the dust had settled and markets opened by gaining back some of Thursday’s losses.
Investors are trying to reprice their bets on the pace of the artificial intelligence infrastructure build-out as they weigh the prospect of a Congress that is more skeptical of the major tech firms’ plans and a wave of local fervor against data centers that drove voters to the polls.
AI and data centers emerged as a key political flashpoint, with more than half of respondents telling an NBC exit poll that it was a crucial or major factor in their decision to vote in the midterms. Across statewide races and referendums, voters roundly supported measures putting limits on data center development in more than 40 local ballot measures.
“This election, whether federally or on the local level, was influenced by data centers,” said Commercial Real Estate Development Association CEO Marc Selvitelli. “This was the rare bipartisan issue that was out there right now.”
The economy emerged as the top issue for voters headed into the election after the U.S. war with Iran drove up energy costs and added to already elevated inflation. The president’s tariffs are also contributing to the rising costs, but the Democratic sweep in Congress still has limited reach into trade policy that’s coming directly from the White House.
"The swing in Congress, the results of the election, are very unlikely to have a significant impact on the president's trade agenda and the tariffs that are in place," Blake Harden, managing director for trade policy at Ernst & Young's Washington Council office, told Reuters. "This is because there is so much trade authority within the executive branch that's been delegated by Congress."
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Democrats have floated the idea of changing the tariff laws the president is relying on to impose his protectionist trade regime, but the party would need to win over some Republicans because it remains short of a veto-proof majority. They’re also working on a plan to roll back Trump’s tariffs directed at Canada, The Wall Street Journal reported Thursday.
“The midterm election results are unlikely to materially influence commercial real estate performance,” Cushman & Wakefield analysts wrote in a postelection report. A divided government adds some degree of fiscal policy stability that “should be calming for markets,” although the U.S. war in Iran and the downstream impacts on prices and inflation remain the greatest “swing factor for inflation and rates,” they wrote.
The election was at least in part a referendum on the war in Iran, according to Hans Nordby, executive managing director of research and investment analytics at Transwestern.
“And it was a ‘no’ vote,” Nordby wrote in an email to Bisnow on Friday. “The new Congress could defund the war or otherwise force a withdrawal. If that were to happen, it would seem likely that oil prices could retreat to prewar levels, which would put downward pressure on inflation.”
The war and its economic fallout, particularly on the price of oil, has been a thorn in CRE's side since it broke out in February. The rising cost of oil has contributed to overall inflation remaining elevated, which in turn has kept borrowing rates higher.
Yields for 10-year U.S. Treasury bonds, a key benchmark rate for all sorts of debt costs, notched lower following the midterms after climbing above 5% in October before retreating, shedding 6 basis points Wednesday and continuing to trade below 4.9% through Friday.
The shift in Congress likely sets the stage for bitter political fights between Trump and Democrats, some of whom have pledged to launch investigations into the White House. But an expectation in policymaking circles is that there’s room for some legislation to be passed.
Trump has shown a willingness to adopt bipartisan deals even if they don’t carry his own legislative priorities, with the 21st Century Road to Housing Act being a prime example, said Bernard Fulton, who works on legislative affairs at the National Multifamily Housing Council in Washington, D.C.
The bill passed both houses of Congress with broad bipartisan support but without changes to voter ID rules that the president had aggressively pushed to include. Trump canceled a signing ceremony for the bill in protest but stopped short of vetoing the legislation.
“The Road to Housing bill became law without his signature, but it didn't happen without his cooperation,” Fulton said. “He's cut deals on our particular issues before, and I think the success from last time is only encouraging for more success in the future.”
With the cost of living and affordability being a dominant theme across this election cycle, policy advocates on Capitol Hill expect Congress to take up some kind of legislation that will hit on housing policy in the next two years, the National Apartment Association said in a postelection primer.
The first housing bill stripped away regulations that had been holding back development and created new pathways to build affordable housing.
But Congress passed the legislation without fully funding many of its programs, said Mark Kulowitz, senior director of policy at Local Initiatives Support Corp., a decades-old nonprofit that helps channel billions of dollars in investment toward housing and economic development in underinvested communities.
“We've got a lot of new programs that were authorized but without funding,” Kulowitz said. “We're hopeful, with the additional attention being shown to housing because of the needs growing locally, that there'll be greater opportunities to make sure that the agencies can implement what Congress already did.”
The One Big Beautiful Bill Act, the president’s signature tax policy agenda, also included additional changes to the low-income housing tax credit program that were welcomed by housing advocates but that also effectively diluted the per-credit value. Critics say the changes make for an inefficient solution to the affordable housing crisis without incentives for the private sector to invest in the program.
A Democratic majority may be more willing to put federal dollars behind the bill, which for now has primarily cut red tape.
“Democrats use funding to fix problems where Republicans would prefer to use tax cuts,” Fulton said.
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