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How Biden's Executive Orders on Affordable Housing and Private Prisons Could Impact Investors

Jan 27, 2021 by Maurie Backman
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Since entering office, Joe Biden has been taking action with a series of executive orders designed to provide relief during the coronavirus pandemic and address some of the more prominent issues that have been plaguing the country. On Jan. 26, he signed two key executive orders designed to address racial bias in housing and end the use of private prisons.

Specifically, the Department of Justice has been directed not to renew contracts with privately operated criminal detention facilities. Furthermore, a presidential memorandum went out directing the Department of Housing and Urban Development (HUD) to assess whether the Trump administration's actions may have undermined fair housing policies and laws. The memo also instructs HUD to fully implement the rules dictated by the Fair Housing Act.

Ending housing bias

Putting an end to housing bias was something Biden talked about frequently as part of his presidential campaign. In fact, he specifically laid out a plan to put an end to exclusionary zoning -- the practice of keeping people of color out of certain housing communities. To this end, he made it clear that his intent is to establish legislation requiring any state receiving federal dollars through the Community Development Block Grants or Surface Transportation Block Grants to implement a strategy for inclusionary zoning.

Biden has also stated he'll be holding financial institutions accountable for discriminatory lending practices. And, according to his campaign website, he plans to implement the Obama-Biden Administration's Affirmatively Furthering Fair Housing Rule, which requires communities in receipt of federal funding to examine housing patterns and address discriminatory policies. This rule was suspended in 2018.

Biden's fair housing practices could open homeownership and real estate investing up to more people of color, allowing them to attain the stability that comes with owning property or enjoy the financial benefits of deriving income from rental properties. Biden's policies may also shift the dynamics within communities, which could drive property values up or down -- it's hard to say. But if his policies work the way they're supposed to, integrating communities should not have an adverse impact on home values.

Ending the use of private prisons

Private prisons have long been a controversial topic, namely because they're perceived as a means of keeping people incarcerated rather than helping to rehabilitate criminals in an effort to integrate them back into society. The more people who get locked up, the more private prisons stand to profit, and that's something President Biden is pushing back against.

Of course, ending the practice of contracting with private prisons is apt to impact those who invest in prison REITs, or real estate investment trusts. Prison REITs, by nature, work with government entities. Cutting those contracts effectively renders private prisons obsolete, though repurposing that space is an option that's always on the table. Still, prison REIT investors will need to brace for backlash. In fact, CoreCivic (NYSE: CXW) and GEO Group (NYSE: GEO), two of the largest U.S. prison REITs, could lose as much as a quarter of their revenue based on the president's new executive order.

More changes still in store

President Biden hasn't shied away from taking action thus far. In the coming weeks and months, he may implement additional changes that impact real estate investors and homeowners, both for better and, potentially, for worse.

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Maurie Backman has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.