The National Association of Home Builders called on Congress Thursday to maintain its support for vital housing incentives in order to meet the nation’s growing need for affordable rental housing and homeownership opportunities.
The housing incentives include the Low Income Housing Tax Credit, the mortgage interest deduction and real estate tax deductions.
“Homebuilding is an industry dominated by small businesses, so the idea of simplifying the complicated tax rules related to business has great appeal,” said Robert Dietz, an economist and assistant vice president for NAHB.
Dietz added, “At the same time, our industry remembers painful lessons from the 1986 Tax Reform Act, when the commercial and multifamily sectors experienced a downturn due to unintended consequences.”
When housing is doing well, it spurs jobs and contributes to economic growth, notes Dietz. “For these reasons, we urge Congress to be cautious and thoughtful when it comes to housing and tax reform.”
According to data from the U.S. Census Bureau, more than 40% of renters are considered “rent burdened,” paying more than 30% of their total income on rent. The need for affordable rental options remains evident.
Currently, the most effective tool for creating affordable rental housing is the Low Income Housing Tax Credit. The program utilizes a public-private partnership to draw in investment and has produced and financed more than 2 million affordable rental units since it began in 1986.
“As LIHTC properties must generally remain affordable for 30 years, they provide long-term rent stability for low-income households around the country,” Dietz said.
Dietz added, “But the demand for affordable housing far exceeds the availability of financing through the LIHTC program. The solution is not to eliminate the most successful affordable housing program in the country, but to provide it with the resources necessary to address the shortage of affordable housing options in our cities and towns.”
The mortgage interest deduction is typically cast into the spotlight when it comes to housing and tax reform, according to Dietz, who noted that there are a number of false assumptions constantly thrown around regarding the homeownership benefit.
“First, we frequently hear that few home owners benefit from the mortgage interest deduction because itemization is required,” he said. “In fact, most home owners will claim it. In 2009, 35 million taxpayers, or 70% of homeowners with a mortgage, claimed the mortgage deduction in that year. Among all home owners who have ever held a mortgage, the vast majority have claimed the home mortgage deduction for years at a time.”
Dietz also mentioned that the cost of housing is very local and varies from state to state, so a large deduction for one home in a certain area may reflect a modest home in a high-cost area.
“The real estate tax deduction is an important reminder that home owners pay more than $300 billion in property taxes each year. This fact is often ignored in the federal tax debates because these taxes are collected by state and local governments,” said Dietz.
According to Dietz, building only 100 single-family homes would create more than 300 full-time jobs and add $8.9 million in federal, state and local tax revenues that would then help grow local communities and schools.
“Housing provides the momentum behind an economic recovery because home building and associated businesses employ such a wide range of workers. With the right policies in place, housing can be a key engine of job growth that this country needs,” he added.