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Experts: Loss of IRS Tax Incentives Hurting Homeownership

Tax code changes eliminated many homeowner tax advantages, and some analysts say new affordable-housing tax measures are now needed to keep homeownership attractive.

WASHINGTON – The Tax Cuts and Jobs Act, which weakened longstanding homeownership tax breaks, has sidelined many would-be buyers and dampened home sales, housing policy experts said at the National Association of Realtors®’ (NAR) Policy Forum in Washington, D.C., last Thursday.

Stricter limits on the mortgage-interest and state-and-local tax deductions have rendered tens of millions of households unable to qualify for the benefits that a majority of homeowners used to enjoy, said David Bank, senior vice president of Rosen Consulting Group. And as home prices continue to rise, prospective buyers are starving for more financial incentives to purchase.

A viable way to fill the void, Bank said, is to create more tax breaks for builders who construct affordable housing and, thus, provide more options for vulnerable first-time buyers, including minorities and young adults.

The need for housing incentives is acute: Residential investment, which historically has accounted for 5% of U.S. GDP growth annually, made up only 3% last year, Bank said – a loss of $18 billion. And a tax code that no longer favors homeownership as heavily is at least partially responsible, said Bank, noting that 28 million fewer tax filers itemized their deductions in 2018. “That’s a very large group of people who aren’t getting that incentive.”

Push for affordable housing

Although it’s unlikely that a divided Congress will restore or advance new tax incentives in the near future, one issue has clear bipartisan: Support on Capitol Hill for affordable housing, said Stockton Williams, executive director of the National Council of State Housing Finance Agencies.

There’s a good chance that the Affordable Housing Credit Improvement Act – a measure that would provide more tax credits to developers of affordable housing units – will pass both chambers of Congress this year, he said. Already, 200 House members and 38 senators have signed on to support the bill.

“The main thing this bill does is provide more housing credit; it’s designed to meet state- and community-level housing needs,” Williams said. “This bill would provide states more housing credits to get more affordable housing built and preserved.”

Julia Gordon, president of the National Community Stabilization Trust, said another bright spot in affordable housing legislation is the Neighborhood Homes Investment Act, which would offer tax incentives for home building and rehabilitation in impoverished areas. The bill, which is gaining steam in the House, would “cover close to a quarter of neighborhoods in the urban cores and maybe a little more in rural areas,” Gordon said. “We need to make sure that this is not a tool for displacement but a tool to raise the living standards for everybody.” She expects the Senate to take up the bill in the next week.

Opportunity zones are also proving to be an effective way to expand affordable housing. About 115 opportunity zone funds totaling $9 billion have been designated nationwide for affordable housing projects, said Christopher Coes, vice president of land use and development at Smart Growth America.

“Affordable housing is by far the No. 1 product that people want to invest in,” Coes said. “We’re beginning to find a number of local communities who are adopting direct opportunity zone incentives.”

He suggested that investors who want to take advantage of opportunity zones should forge partnerships with diverse community stakeholders, such as nonprofits and hospitals, “who have capital and see affordable housing as a boon to the neighborhood. Now is the time for us to have a radical reimagining of how we produce affordable housing.”

The panelists agreed that as affordable options increase, real estate professionals will play an important role in educating buyers about the financial requirements of homeownership. For many would-be buyers, it’s not the price of the home but the size of the down payment that holds them back from purchasing.

Gordon reminded agents and brokers that many people falsely believe they need a 20% down payment to qualify for a mortgage. “If we can solve that problem or create a policy that addresses that, we can get a lot more homeowners into homes in the places that they want to live,” she said.

As affordable housing solutions work their way through the federal and state legislatures, one thing’s clear: Realtors will be invaluable partners in shaping the policies and promoting them to the public. “Everybody knows that when NAR’s members get organized and focused on a policy issue, things in Washington happen,” Williams said.

Source: National Association of Realtors® (NAR), Graham Wood

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