Monday, December 18, 2017

A few comments: Housing and Policy

by Bill McBride on 12/18/2017 01:12:00 PM

A few brief comments on tax policy changes ...

There are a several policy changes that might impact housing: the reduction in the Mortgage Interest Deduction (MID), double taxation on certain income (elimination of State and Local income tax deduction), a $10,000 limit on property tax deduction and SALT, and corporate tax cuts (and other tax cuts that mostly benefit high income earners and the wealthy).

First, I think the impact of reducing the MID from a maximum of $1 million in mortgage debt to $750 thousand in mortgage debt will have very little impact on the housing market. Overall I think the MID is poor policy, and the impact on housing is overstated. The maximum has been capped at $1 million since 1986, and there has been little impact on high cost housing areas.  The impact of the reduction in the MID should be small.

The double taxation on SALT (there is a cap of a $10,000 deduction on SALT and property taxes), will have an impact on housing in some areas.  At the margin, some people might choose to live in one state over another (if they have a choice), based on taxation.  So this could impact demand in certain states - especially for the middle and upper-middle class homeowners.

On the other hand, the corporate tax cuts (and other tax cuts) will mostly benefit the wealthy, and this will be a positive for high end real estate.

Overall I think there will be some negative impact based on double taxation in some areas, but overall I think the impact of these policy changes on housing will be minimal.