- Regulatory conditions are becoming an increasingly important component of real estate investment and development decisions. Rent regulation, insurance costs and availability, permitting timelines, energy and utility constraints, and restrictions on institutional ownership are all influencing where capital flows, and where it does not.
- The effects vary significantly by location and property type. A data center moratorium and a rent-control initiative pose fundamentally different risks to different investors, and the policy landscape is evolving at the state and local level in ways that demand market-by-market analysis.
- Industry participants are incorporating regulatory considerations more directly into their decision making, treating policy trajectory as a variable on par with supply, demand, and cost of capital; not because policy has replaced fundamentals, but because it increasingly determines whether strong fundamentals translate into actionable opportunity.
“Regulation and development constraints can create barriers to new supply, potentially supporting incumbent assets, but they can simultaneously create liquidity and exit risk because future buyers may discount exposure to the jurisdiction.”
Location, demographics, and cost of capital still drive real estate decisions. That has not changed. What has changed is the degree to which regulatory conditions, at the local, state, and federal level, determine whether a market’s economic fundamentals translate into viable projects, sustainable operations, and attractive returns. The Emerging Trends survey reflects this shift: a substantial majority of respondents say insurance costs and/or power and utility availability are materially affecting their decisions, and tariff-related uncertainty has appeared as a significant concern for respondents.
These are not abstract policy observations. They are inputs used by developers to evaluate project feasibility, by lenders to assess market risk, by operators to project costs, and by investors to screen geographies. The policy environment has become practical, not just political.
Different Policies, Different Implications
The tendency to group all regulatory challenges under a single heading—“policy risk”—obscures distinctions that matter for investment strategy. The policies affecting real estate in 2027 fall into several categories, each with different implications for different investors.
Rent regulation is spreading. The National Multifamily Housing Council is actively engaging on rent control in more than a dozen markets. The 21st Century ROAD to Housing Act, signed into law in July 2026, restricts certain large institutional investors from purchasing single-family homes beginning in January 2027, subject to exceptions for new construction, built-to-rent communities, and certain homeownership programs. A bipartisan bill has been introduced to address some of the act’s impact, though it has not yet advanced. For multifamily housing owners, operators, and developers, rent regulation directly affects underwriting: rental revenue projections, operating cost pass-throughs, and exit assumptions all change when a jurisdiction adopts or expands rent control. The relationship between rent regulation and new housing construction is complex and varies by market: the effects depend on the structure of the regulation, exemptions for new development, and local market conditions. For investors in other property types, the effect is indirect but still material: rent control tends to suppress new housing construction, which can redirect household formation patterns and affect demand across sectors.
Insurance availability and cost present a different kind of challenge, one driven primarily by climate exposure and carrier economics, though state regulatory responses to insurer withdrawals can compound the effect. In parts of Florida and Southern California, the interaction among these forces has produced insurance costs that are multiples of prior levels. The effect on underwriting is immediate and quantifiable—a property that was viable at one insurance premium may not be at another—and unlike rent control, insurance costs affect every property type, from single-family homes to hospitality to industrial.
Permitting and entitlement timelines create a third category of policy influence. The time required to move a project from contract to construction varies dramatically by jurisdiction, and that variation does not merely delay returns. It changes the risk profile of development by extending the period of exposure to rate changes, cost escalation, and demand shifts. In markets with lengthy predevelopment processes, developers carry more risk for longer, and the economics of new construction become harder to underwrite with confidence.
Energy and utility constraints are an emerging but already impactful category. Data center development restrictions, enacted primarily by state or local governments, are now present in a growing number of jurisdictions, reflecting community and political concerns about power consumption, water use, and the local impact of large-scale digital infrastructure. As one West Coast investor puts it, “Power is becoming the currency in commercial real estate.”
Where Policy Is Shaping Decisions
For certain asset classes in certain markets, the cumulative weight of regulatory conditions has become a decisive factor. One CEO of a hotel operator describes Los Angeles, Portland, and Chicago as markets where the regulatory and insurance environment makes it difficult to generate returns that justify new investment; a perspective that also reflects the specific economics of upper-end hospitality in those cities, including labor costs, the growing frequency and expense of property-related lawsuits, and the interaction between local policy and operating margins.
The observation is not universally shared. Other firms remain active in all three markets, particularly in property types with different regulatory exposures. But the broader pattern is worth noting: when policy conditions accumulate to a point where experienced industry participants choose to redirect activity, the effects extend beyond the immediate decision makers. Reduced investment and development activity may affect property values, tax revenue, and the quality of the built environment that may take time to reverse. Policy can also create opportunities. In New York City, zoning reforms and new tax incentives have helped unlock office-to-residential conversions—Manhattan conversion starts increased from 1.6 million square feet in 2023 to 5 million square feet in 2025—demonstrating how changes to development restrictions can alter the economics of existing assets and redirect investment toward new uses.
Boston illustrates the other direction. In 2025, development approvals declined by approximately half while the Zoning Board of Appeal deferred 19 cases compared with none the prior year, a combination of evolving regulatory requirements and elevated construction costs that demonstrates how quickly a well-functioning market can lose momentum.
San Francisco and the Forces Behind Changing Sentiment
Still, if some markets illustrate the costs of regulatory accumulation, San Francisco illustrates how quickly sentiment can shift when multiple forces align. The city’s ascent from 45th to fifth in this year’s survey rankings illustrates how multiple forces, not policy alone, can shift market sentiment rapidly.
The recovery reflects several converging factors. The artificial intelligence industry’s rapid expansion has generated substantial demand for office and laboratory space, with AI-sector leasing contributing meaningfully to vacancy reductions.
Government policy has also contributed. Beginning in 2024, the city adopted a more pragmatic posture toward commercial development, invested in public safety and public realm improvements, and signaled a willingness to partner with the private sector. Interviewees credit the combination of these factors rather than any single catalyst and serve as a reminder that policy is one variable among several, and that even a supportive environment requires underlying demand to produce results.
Incorporating Policy into Investment Decisions
“We pay particularly close attention to political and regulatory risk.... It does not mean we are flooding into [one type of market], but we think a lot about what it means for supply-demand dynamics.”
The practical response across the industry is an expansion of the decision-making process. Several interviewees describe adding regulatory trajectory as a formal variable in market screening, development feasibility, and acquisition analysis; not as a qualitative overlay, but as a quantified input alongside supply pipelines, demand projections, and cost of capital.
The challenge is that policy risk is inherently more difficult to model than property-level fundamentals. Legislative changes can be abrupt. Ballot initiatives can produce binary outcomes. And the relationship between public sentiment, political action, and investment returns is not linear; it can remain dormant for years before producing a rapid shift in the operating environment.
What is clear from this year’s interviews is that the firms treating policy as a background consideration are finding themselves surprised more often. The firms treating it as a core input—tracking legislative calendars, monitoring regulatory proposals, maintaining relationships with local officials, and building scenario analysis around policy outcomes—are better positioned to anticipate changes and, where possible, to act ahead of them.
The regulatory environment is becoming the lens through which the traditional determinants of real estate value are evaluated, and the developers, operators, investors, and lenders who adjust their process accordingly are the ones most likely to avoid the markets that look attractive on paper but prove difficult in practice.
