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A blue Congress and a bluer Arizona: what it means for commercial real estate and housing over the next two years

If Democrats take Congress and gain ground in Arizona, owners and buyers will want to know what changes for rates, taxes and prices. Here's what we expect, what we don't, and how to plan.

By Jon Willis, Founder & Designated Broker · · 7 min read

Election nights make for big headlines, but the real estate market responds to policy, not slogans. If the final count gives Democrats control of Congress and more power in Arizona, the right question for property owners isn't who won. It's what can actually change in the next two years, and what can't.

This is an opinion piece. I'll be direct about my view: Democrats are not known for lowering prices or interest rates. When they hold power, spending and taxes tend to go up. But I've also been in this business for 27 years, and the market rewards people who plan around what's likely, not what they fear.

First, what a Democratic Congress can't do

  • The president still holds the veto. President Trump is in office through January 2029. Any bill that raises taxes or rewrites real estate rules has to get his signature, or two-thirds of both chambers to override him. That's very unlikely. Expect two years of gridlock, not a wave of new laws.
  • The 2025 tax law stays in place. The 2025 federal tax law locked in the lower individual tax rates, the 20% deduction for pass-through income and full bonus depreciation. Those matter a lot to real estate investors, and repealing them would take a law the president signs. 1031 exchanges were left intact too.
  • Congress doesn't set interest rates. The Federal Reserve sets short-term rates. Mortgage and commercial loan rates follow the bond market, mostly the 10-year Treasury.

For the next two years, the biggest federal change is likely to be gridlock, not new taxes.

Where Washington can still move the market

Gridlock doesn't mean no impact. A split government can still push rates and prices around:

  1. Spending fights and shutdown threats. Budget standoffs between a Democratic Congress and a Republican White House bring the risk of government shutdowns. Shutdowns can delay SBA loans, FHA and VA approvals and other federal processes that deals depend on.
  2. Deficits and long-term rates. Bond investors watch federal borrowing. If both sides keep spending, and history says both parties do, investors demand higher yields to hold Treasuries. Higher yields mean higher mortgage and commercial loan rates. Don't plan on rates falling quickly because of anything Congress does.
  3. Investigations and uncertainty. A new majority will spend a lot of energy on hearings and oversight. That creates noise. Uncertainty tends to make lenders more careful and buyers slower to commit.
  4. Setting up 2028. The tax fight Democrats really want is in 2029, if they win the White House. Expect proposals for higher taxes on high earners, corporations and capital gains, and possible limits on 1031 exchanges. None of that can pass in the next two years, but it'll shape how long-term investors plan.

What changes if Arizona goes blue at the state level

The state matters more for day-to-day real estate than Washington does. Governor Hobbs has been working with a Republican Legislature since 2023, and that split has forced compromise. If Democrats win the governor's office and the Legislature, the brakes come off. Here's what we'd watch:

  • Water rules for rural growth. The governor has pushed for groundwater management in rural areas. With a friendly Legislature, expect tighter rules on groundwater pumping outside the Phoenix and Tucson areas. That could raise the value of land with secure water and lower the value of land without it, especially in Pinal County and other fast-growing rural areas.
  • The flat income tax. Arizona's 2.5% flat income tax is one of the reasons people and businesses move here. A Democratic trifecta could try to raise it or add brackets for high earners. That would make Arizona less competitive with Texas, Nevada and Florida, which have no state income tax.
  • Housing rules. Democrats have backed more housing density, accessory dwelling units and starter homes, and some of those bills drew bipartisan support. More density could help builders and owners of infill land. Arizona law bans local rent control, and changing that would be a much bigger fight. Even so, expect more pressure on landlords through tenant-protection bills.
  • Data centers, energy and water. Expect closer scrutiny of the water and power that large users like data centers need. That could slow some industrial projects and change which sites get approved.

What we expect over the next two years

  1. Rates stay higher for longer. No one in Washington has a plan to cut deficits, and the bond market knows it. Plan your deals, refinances and holds around today's rates, not hoped-for cuts.
  2. Home prices hold but don't jump. Arizona still has a housing shortage, and people keep moving here. High rates keep a lid on how much buyers can pay. Expect flat to modest price growth, not a crash and not a boom.
  3. Commercial values sort by property type. Industrial, retail with essential tenants and well-located land stay strong. Older office and anything with near-term loan maturities stays under pressure. Elections don't change that.
  4. Some sellers move early. Owners worried about future capital gains and 1031 changes in 2029 may sell or exchange in 2027 and 2028 while today's rules still apply. That could add supply in the back half of this cycle.
  5. Arizona's growth continues. Jobs, people and capital have been flowing into Arizona under governors of both parties. Policy can speed that up or slow it down. It hasn't stopped it.

The other side of the argument

To be fair, there's another view. Supporters of divided government argue that gridlock is good for markets because it stops big swings in policy. Some economists point out that tariffs and the 2025 tax cuts added to deficits and inflation under Republican leadership too. Democrats also argue that housing density reforms and water planning protect Arizona's long-term growth rather than hurt it. Reasonable people disagree, and owners should plan for more than one outcome.

What property owners and investors should do now

  1. Stress-test your loans. If you have debt maturing in 2027 or 2028, run the numbers at today's rates or higher. Talk to your lender early.
  2. Plan your 1031 timing. If you've been thinking about selling or exchanging, look at doing it while today's rules are certain.
  3. Know your water. If you own land outside the major cities, find out exactly where your water comes from and how secure it is.
  4. Watch the Legislature in January. The first session after the election is where the big state changes will show up. Pay attention to water, tax and housing bills.
  5. Don't freeze. Waiting for perfect political conditions is a strategy that costs money. Good deals get done in every administration.

Elections change the weather, not the climate. Arizona's long-term story is growth. The next two years will likely bring higher-for-longer rates, political noise and more state-level regulation. Owners who plan for that will do fine. Owners who wait for the politics to settle may be waiting a long time.

Sources

This article reflects the author's opinion and is general market commentary, not legal, tax or investment advice. Consult your tax advisor before making decisions based on tax law.