Another national election is over. Voters decided on hundreds of questions, measures, amendments, and propositions, many at the local level. While some of the races, including the presidential one, are still being discussed and counted, we can take a look at ballot measures, many of which will impact investors. Below are just some of the statewide measures that could be of interest to real estate investors across a few main topics. One note of caution: Some of the impact of approved legislation could take months or even years to play out.
A few more states have passed ballot measures around the legal cultivation and usage of marijuana. This could be good news for investors in the space, either directly or through real estate investment trusts (REITs) like Innovative Industrial Properties (NYSE: IIPR). Here's a look at what happened in a few states:
- In Arizona, Proposition 207 legalized possession and use of up to an ounce of marijuana for adults over the age of 21 and allows individuals to grow up to six marijuana plants at their residences. Recreational sales in the state could begin as early as March of next year. The 120 medical marijuana dispensaries in the state would be allowed to sell marijuana for recreational use.
- Meanwhile, Mississippi legalized medical marijuana for qualified people with a defined medical condition even without approval of their physicians but provided through licensed treatment centers by passing Initiative 65. Marijuana would be taxed at a 7% sales tax rate. Individuals can possess up to 2.5 ounces of marijuana at one time.
- Montana passed Ballot Issue #14 I-190. This measure legalizes possession and use of marijuana for adults over 21. It puts a 20% tax on nonmedical marijuana and allows anyone serving a sentence for an act permitted by the initiative to apply for resentencing or an expungement of the conviction. For the first year, only dispensaries with existing medical marijuana licenses in the state will be allowed to sell for recreational use.
- In South Dakota, Constitutional Amendment A and Measure 26 have to do with marijuana, and both passed. Amendment A allows the state to legalize, regulate, and tax marijuana and requires the Legislature to pass laws regarding hemp and medical marijuana. Meanwhile, Measure 26 legalizes marijuana for medical use. This paves the way for creation of manufacturing and cultivation facilities, as well as marijuana dispensaries.
- New Jersey passed Question 1, which legalizes cannabis use for those over the age of 21. An existing state commission that oversees New Jersey's medical cannabis program will guide the new personal-use cannabis market and establish rules around the sale of cannabis for recreational use. Cannabis products will be taxed at the existing tax rate, but individual municipalities may be able to pass an ordinance to charge a local tax on cannabis products.
Tax increases and reductions
Property and income tax decisions may change real estate markets over time. Tax increases can make people more likely to leave a state if they are too high. Tax reductions can encourage business development but also can cause state budget shortfalls. Here's what various states have done in this arena:
- Arizona's Proposition 208 is likely to succeed as of this writing. It will increase income tax by 3.5% on single persons or persons filing separately making over $250,000 and married persons filing jointly making over $500,000 annually.
- California voted on Proposition 15, and as of this writing, it's still too close to call but looks unlikely to pass. Proposition 15 creates a split roll tax that will change how commercial and residential properties are taxed. It would tax commercial properties based on current market value rather than purchase price and use the funds for schools. Commercial real estate developers strongly opposed this proposition. The state also voted in favor of Proposition 19, which changes property tax rules to allow homeowners over 55, the disabled, or victims of wildfires and other disasters to transfer their current primary residence’s tax base to a replacement residence. This could be very important in unlocking residential real estate inventory in the state.
- Colorado passed Proposition 116, which will reduce the state individual and corporate income tax rate from 4.63% to 4.55%. People who make $50,000 will save approximately $40 a year. The tax cut will reduce the state's revenue by around 1.2% for the coming year.
- Illinois did not pass Amendment 1, which would have overturned the state's constitutional requirement that the state personal income tax be a flat rate in favor of a graduated tax rate.
- Louisiana voters approved Amendment 2, which will allow the presence of oil or gas production to be included in determining the fair market value of an oil or gas well during a property assessment. Oil and gas producers with highly productive properties will face higher taxes.
Rent control is a hotly debated topic that tends to be decided at the city level. Voters in Sacramento, California decided against a strict rent control measure for the city. Portland, Maine voted yes on Question D, a rent control measure to tie rent increases to the rate of inflation and create additional renter protections.
It's important to note that California's Proposition 21 did not pass. This initiative would have amended the state law to allow local governments to establish rent control on residential properties over 15 years old. The National Multifamily Housing Council applauded the results, saying, "Proposition 21’s rejection is a victory for hardworking Californians who deserve real housing solutions that increase supply and bring costs down and a signal that voters recognize that rent control is not a sound solution for housing affordability."
Gambling moves forward
Several states expanded gambling during this election. Gambling is becoming an income generator for more states that are dealing with decreased revenues. This could be good news for developers interested in building casinos or expanding operations.
Here's a look at what happened:
- Maryland passed SB4, which clears the way for sports and event betting in the state in order to fund public education. This is good news for casino operators already in Maryland, including MGM Resorts (NYSE: MGM).
- Nebraska approved three initiatives that will widen gambling in the state. The initiatives will allow games of chance such as blackjack to be conducted by authorized gaming operators within licensed racetrack enclosures, A newly created Nebraska Gaming Commission will license and regulate gambling, and there will be a 20% annual tax on gross revenue.
- South Dakota approved Amendment B, which brings legal sports betting to the city of Deadwood and any Native American gaming facilities located within the state. Deadwood already allows games of chance and slot machines. The measure amends the state constitution, but the state legislature will still need to authorize sports betting.
- Louisiana voters had the opportunity to vote on whether they want legal sports betting in their home parish. The state already has over two dozen casinos. The Louisiana constitution permits parish-level voting on gaming expansion. So far, the answer appears to be yes, with most but not all of the state's 64 parishes voting in favor of sports betting. In 2018, 47 of 64 parishes voted in favor, and this time it looks like between five and 10 parishes may have voted against sports betting.
The Millionacres bottom line
Rules and regulations that impact real estate are changing constantly. It's always a good idea to keep abreast of issues like zoning and rent control if you're a rental property owner or short-term rental operator. However, as the above list shows, these types of rules can have wide-ranging consequences for REIT investors as well and are a good reminder to pay attention to where a REIT holds properties, making your decisions accordingly.