Politics Is the Line Item You Carry at Zero

I got into a conversation last week that should change how you underwrite political risk. You will see the exchange below.

​Olivia Ramos at Deepblocks counted 169,510 single-family homes already upzoned across 5 markets: Las Vegas, Atlanta, Miami, Dallas, and Los Angeles. At the densities the new zoning allows, that is 847,550 units of housing already legal. No rezoning fight, no variance. The capacity is sitting in the code.

That is politics creating value. A zoning change somebody fought for, passed, and signed created those rights.

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The exchange sharpened one point. The zoning change unlocked value on paper. It cannot unlock it alone. Small projects carry higher per-unit costs, so the margin only works if the jurisdiction keeps showing up: faster and cheaper approvals, or incentives that offset the scale penalty. Legal capacity is not the same thing as buildable capacity. Both are political outcomes.

Here is the belief I want to challenge this week. Political risk is background noise. Somebody else's problem, macro weather, a footnote in the memo. Your model carries it at zero.

Zero is not a neutral number. Zero is a forecast. It says the jurisdiction will not touch your revenue, your costs, your timeline, or your exit. I have watched that forecast fail in both directions in the past 90 days, inside my own pipeline.

Start with New York, because the arithmetic is public. The city froze rents on stabilized units this year. The costs of running those buildings did not freeze. The board's own Price Index of Operating Costs has them up 31% since 2022, with insurance alone up 10.5% in the past year. The buildings are old, capital needs do not wait for permission, and the abatements that might offset the squeeze are hard to get. Hold the revenue line flat against all of that and value erodes with no operator error anywhere in the story.

Pull any stabilized asset's T-12, hold revenue flat, grow the expense lines at what they have actually been growing at, and watch the DSCR. That is the whole exercise. It takes an hour.

This is not a thought experiment. I am actively working on multiple projects right now where policy and politics carry critical valuation implications. One is a deal in New York City, a rent-stabilized portfolio where my offer came in well below what the same buildings would have commanded a few years ago. The buildings did not change. The rules did, and the future of the rules is genuinely uncertain.

Politics did not show up in this deal as a protest or a headline. It showed up as a third of the price and a financing problem.

Washington, DC is running the same experiment with a different mechanism. I am working with owners there who hold a site with matter-of-right zoning for multifamily. On paper, housing is the higher and better use, and these are people with deep housing expertise. We are building a hotel instead.

The reason is TOPA, the District's Tenant Opportunity to Purchase Act, stacked on post-COVID tenant-landlord policy. TOPA gives tenants purchase rights that can add the better part of a year, sometimes more, to any sale or exit. The current enforcement climate has made it very difficult to remove tenants who are not paying rent or not complying with their leases. Price that risk honestly and the ranking flips: a hotel, which does not trigger tenant purchase rights, becomes the more valuable use on a risk-adjusted basis.

A policy built to protect housing is pushing a housing-ready site out of housing. The owners in both cities did nothing wrong. They operated under one set of rules, and the rules moved.

The pattern is not confined to housing. Not long ago, a global hospitality company approached me about helping expand a new-build extended-stay platform. I told them it would not be as easy as their plan assumed, because local political dynamics in that space are not priced into a national rollout. I have since learned, through mutual relationships, that the first test case has run into exactly the kind of local political friction I described. A sophisticated global operator, with real capital and a national plan, still carried local politics at zero.

And if you think this is a housing story, look at the fastest-growing segment in commercial real estate. In Q1 2026 alone, at least 75 data-center projects worth about $130 billion were blocked or delayed, per Data Center Watch, which tracks local opposition. Statewide moratorium proposals have been introduced in 14 states. The best-capitalized companies on earth are committing hundreds of billions, and the jurisdiction is still the gate. Scale does not exempt you. Capital does not exempt you.

Here is the discipline. 5 questions to run on any jurisdiction before you underwrite in it, whatever you build or buy. Write the answers down. The writing is the discipline.

1. Political will. What has this community publicly said it wants? Economic development goals, community needs, stated priorities. Map your use against them, then list the ratified policies and pending proposals that touch it. You are answering one question: does the jurisdiction want what you are bringing or investing in?
2. Policy restrictions. Do local policies restrict your use in ways that impair revenue, scale, or the use itself? Usually the restriction exists for a reason the community considers good, affordability being the common one. Your model does not get to argue with the reason. It has to price the restriction.
3. Incentive offsets. Municipalities understand that restrictions mute market forces, and most offer offsets: abatements, credits, grants, financing programs, local through federal. The question is not whether they exist on paper. It is whether they actually get granted, on what timeline, and whether they survive an administration change.
4. Enforcement climate. Wherever there is restriction or political will, there is enforcement on the ground, and it is rarely what the statute says. Find the temperature. How long does a violation, a dispute, or a non-paying tenant actually take to resolve? Read last year's outcomes, not the code.
5. Election calendar and policy tracking. Who decides the 4 items above, when do they face the voters, and what has their challenger promised? Then make it a habit, not a project. Local trade associations and industry groups track this for a living, and membership is cheaper than a mispriced deal.

None of this requires a consultant. A first pass takes an afternoon. The discipline is in repeating it.

I am not telling you to follow politics more closely. You already follow it. I am telling you to price the policy, in writing, before you sign.

Politics froze the rents in New York. It moved a housing site to hospitality in Washington. It stalled $130 billion of data centers in 90 days. And in 5 markets it quietly wrote 847,550 units of legal capacity into the code. Value moved in both directions, and none of it was in the model.

The jurisdiction is in your capital stack whether you priced it or not. The only question left is whether you keep carrying it at zero.

-Damon

Damon C. Healey, Founder, Eternal Companies I help proven real estate operators build the institutional platform that makes capital come to them. If you want to pressure-test your platform against an institutional standard, that is what a Platform Edge Session is built for. Book a Platform Edge Session | Get the 2026 IC Stress Test​

P.S. If you are underwriting anything in a jurisdiction with an election this fall, run the 5 questions before you lock the number. An afternoon now is cheaper than a surprise at the refinancing.

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