How will the outcome of the 2020 election affect the real estate and housing markets? Although there’s no simple answer to that question, much of Joe Biden’s proposed housing agenda is encouraging, with policies to increase the availability of affordable housing, raise homeownership levels, and provide aid to distressed renters. Yet, elements of his proposed tax policy related to housing are troubling for real estate agents and investors.
Real estate industry expert and economist Matthew Gardner notes it’s important to remember the outcome of elections in the U.S. Senate will also influence housing and real estate policy. Biden’s party maintained control of the House of Representatives, but no one knows which party will control the Senate. Two remaining Senate seats must go to a runoff vote in January 2021 to determine which party controls the Senate and how that control will impact the enactment of Biden’s proposed housing policies. With that caveat in mind, it’s time to look at what Biden has planned for the real estate and housing markets.
A Glimpse at the Affordable Housing Crisis
The United States has a severe shortage of affordable housing. According to the National Low Income Housing Coalition, only 4 million housing units are available to the nation’s 11 million extremely low-income renter households. Harvard University’s Joint Center for Housing Studies reports that 38.1 million households spend more than 30 percent of their income on housing, which makes it difficult for those households to afford non-housing necessities. (In the United States, 30 percent of income has long been the standard metric to determine housing affordability.)
Investing to Address the Shortage of Affordable Housing
In recognition of the problem’s severity, Biden has outlined a massive housing plan. The centerpiece of the plan is Biden’s pledge to invest $640 billion in housing over the next 10 years. A substantial portion of the investment in housing would be dedicated to increasing the availability of affordable housing units. The Biden housing plan calls for the creation of a $100 billion Affordable Housing Fund, which would allocate $65 billion for state housing authorities to build affordable housing or upgrade existing affordable units.
The fund would also designate $20 billion to increase the size of the Housing Trust Fund, a federal program that provides grants to the states to construct and maintain affordable housing. The Affordable Housing Fund would allot $5 billion to expand the HOME Program and the Capital Magnet Fund, which are existing federal programs that bolster affordable housing.
A Tax Incentive to Increase Homeownership
To make homeownership affordable for a greater number of Americans, Biden wants to implement a $15,000 tax credit for first-time homebuyers. Unlike previous first-time homeowner tax incentives, the tax credit would be used at the time of purchase. Evan Liddiard, the director of tax policy for the National Association of Realtors (NAR), believes a tax credit for homeownership will have bipartisan support. Therefore, he predicts a bill to enact the credit would have an excellent chance of becoming law. NAR is willing to work to see a law passed that provides a tax incentive for homeownership, according to Liddiard.
Additional Housing-Related Tax Policy
On several occasions, Biden has stated he would eliminate the tax cuts Trump signed into law with the 2017 Tax Cuts and Jobs Act. Since Biden has provided few specifics, there’s the possibility he intends to make changes to the law’s mortgage deduction rules.
The Biden housing plan explains the government would fund the $640 billion in housing investments with a tax hike on “corporations and large financial institutions”. Companies with more than $50 billion in assets would cover $340 billion through a new tax on certain liabilities. Since the remaining $300 billion would be spent on the construction of new homes and housing units, those funds would be part of Biden’s $1.3 trillion infrastructure plan. Funding for the infrastructure plan would come from raising taxes on corporations and the wealthy.
Two Tax Policies Could Hurt Real Estate Industry
In an effort to fund services for children and the elderly, Biden had proposed two changes to tax policy that would have a negative impact on real estate investors. During the campaign, he talked about eliminating like-kind exchanges, better known as 1031 exchanges. Liddiard said NAR will be working to ensure congressional and administration officials are aware of the positive impact 1031 exchanges have on the economy. Another concerning aspect of Biden’s tax agenda is his proposal to prohibit real estate investors from using losses to reduce their income taxes.
A Bill of Rights for Homeowners and Renters
The Biden housing plan states the new administration would seek to pass new legislation called the Bill of Rights for Homeowners and Renters. One of the law’s goals would be to protect homeowners from predatory lending practices. For tenants, the law would make it illegal for landlords to discriminate against renters who are beneficiaries of federal housing programs such as Section 8.
Support for Renter Assistance
Biden’s housing plan also indicates he will work to secure the passage of the Legal Assistance to Prevent Evictions Act of 2020. The bill, which has been introduced in the House and the Senate, would provide free legal aid to tenants during the eviction process. The Biden housing plan states he “will encourage localities to create eviction diversion programs, including mediation, payment plans, and financial literacy education programs”. Yet, the plan does not offer details to explain how the new administration would implement this portion of the housing agenda.
Housing Choice, the federal program better known as Section 8, subsidizes rent for low-income households. However, Section 8 does not receive enough funding to cover the majority of eligible households. The Biden housing plan would increase funding for Section 8 to provide assistance to every eligible household.
No matter how policy changes in Washington impact the nation’s real estate market, Weidel Real Estate will be prepared to help homebuyers and sellers navigate the new landscape. Contact us when you’re ready to buy or sell a home.