Search This Blog

Tuesday, November 7, 2017

How Would Federal Tax Reform Impact Housing?

From a historical economic perspective, the Tax Reform Bill called the "Tax Cuts and Jobs Act" released by the House of Representatives, has been unveiled at a unique time. As a nation, we are experiencing extreme wealth maldistribution not seen since before the Great Depression. In California, more than one-third of residents live near or below the poverty line. While poor and working class incomes have stagnated since the recession eight years ago, rents have escalated at an alarming and unaffordable pace. One in five renters struggles to pay rent, and eviction is becoming a growing problem with many downstream consequences. Income inequality and stagnation, combined with rising rents and shrinking affordable housing resources, have created a massive housing crisis across the country.

How does the tax reform address these pressing problems? It either ignores or exacerbates them. Below is an overview of the tax reform proposal's impact on housing.

  • It would eliminate bond tax exemptions and 4% tax credits that provide critical funding for affordable housing production and preservation. In California, the State Treasurer's Office projects that loss of these funding sources would lead to about 20,600 fewer homes annually statewide that are affordable to low income households. Tax-exempt bonds and 4% tax credits were by far the largest source of funding for affordable housing in California last year, providing twice as much funding as 9% tax credits.
  • It would lower the top corporate tax rate from 35% to 20%. This will significantly reduce investor interest in the 9% Low Income Housing Tax Credit. The amount of equity that investors are willing to put into affordable housing will make many projects infeasible. This program has been the primary funding source for new affordable housing production nationwide.
  • It would eliminate the mortgage interest deduction on homes valued over $500,000, and limit deductions for property taxes. This would not impact low income households or renters, but homeowners in high land value areas such as the California coast and metropolitan centers don't like it. For example, almost all new homeowners in the Bay Area would be affected. The National Association of Realtors and National Association of Homebuilders have publicly opposed the bill for this reason. I personally believe this concept is worth considering as a way of directing more resources to households that really need help, as the mortgage interest deduction is currently a highly regressive tax break that overwhelmingly benefits the wealthy.
  • It would eliminate the New Markets Tax Credit and Historic Rehabilitation Tax Credit. These programs do not exclusively fund affordable housing, but many housing projects rely on these programs, and their implementation have helped to implement community development and community revitalization efforts across the country.

1 comment:

  1. Oh my god! This was so intriguing! Keep the good blogs coming!