LOS ANGELES — The sweeping tax reform bill signed into law in late 2017 by President Donald Trump is expected to benefit the U.S. multifamily investment market, according to a new report from CBRE.
The report states that under the Tax Cuts and Jobs Act, the tax benefits of renting over buying a home will increase in 29 of the 35 largest U.S. markets. That number is up from 15 markets before the tax reform.
The new tax law increases the standard deduction from $12,700 to $24,000 for a married couple. This means more people will take the standard deduction rather than itemize items such as mortgage interest, which CBRE said will significantly benefit renters in most of the country’s largest markets and encourage renting over homeownership.
Additionally, limitations on state and local tax deductions, as well as the loss of the mortgage interest deduction on home purchases of $750,000 or more, will marginally impact the cost of housing in high-cost markets.
“The new tax policy’s raising of the standard deduction, combined with limitations on mortgage interest and state and local tax deductions, will significantly increase the attraction of renting versus buying housing,” said Spencer Levy, CBRE’s senior economic advisor and head of Americas research. “This could potentially provide a boon to multifamily investors in many markets.”
The 29 markets where the benefits of homeownership are now significantly less than before the legislation was passed include Miami, Philadelphia, Chicago, Denver, Seattle and Washington, D.C. Previously, mostly smaller markets with lower housing costs saw these benefits for their renters.
According to the CBRE report, the limits placed on state and local tax (SALT) deductions and mortgage interest deductibility under the tax reform have impacted three markets in particular: New York, San Francisco and San Jose. Purchasers of a median-priced home in San Jose will now lose more than $3,000 in SALT. San Francisco will see a loss of nearly $4,000 while New York will see a loss of $500.
“The overall impact of tax reform should be a positive,” states the report. “But the length of that impact is uncertain given its late-cycle timing and whether corporate tax savings will be sufficiently reinvested to cause job growth.”
Read the full report from CBRE here.
— David Cohen