Looking for a little clarity on this week’s news? Windermere Chief Economist Matthew Gardner looks at proposed changes that will likely impact housing. However, for a more detailed analysis, the picture needs to become a lot clearer.
There’s an overwhelming amount of data and headlines circulating. This column is my attempt to make sense of it all for you, the real estate professional, from an overall economic standpoint.
Since the election, I’ve received an awful lot of messages on social media and my inbox asking me to talk about what the housing market might look like under a new administration. But rather than reaching out to you individually — as nice as that would be — I thought it would be easier to discuss it here.
So let me start with the main reason why I haven’t addressed this issue yet. It’s really rather simple — we just don’t know!
You see, it’s really not about the presidential election results being disputed — I assume that will sort itself out some point — but it’s impossible for me to offer any meaningful analysis until I know who controls the Senate, and I’m afraid, we won’t know that until January when we get the results of the two runoffs for Senate seats in the state of Georgia.
You see, if Republicans hold those two seats, they will keep control of the Senate, and any major plans that the new administration may want to implement will likely face a very significant obstacle in the form of Senate Majority Leader Mitch McConnell. So unfortunately, any quantifiable analysis that I might offer would be, at least for right now, just pure speculation.
President-elect Joe Biden does have some pretty big plans for housing with a focus on a new renter tax credit and more funding for subsidized housing.
But he does have goals for the ownership housing market too. Some of these are rather exciting, but a few aren’t! By now, many of you will know of my concern about housing affordability, and this worry, apparently, hasn’t fallen on deaf ears.
The new administration plans to enact some much-needed zoning reform that would make Community Development Block Grants (CDBG) and Surface Transportation Block Grants (STBG) contingent on cities’ adopting strategies to get rid of the antiquated “exclusionary zoning” laws that have significantly limited new construction.
As you may be aware, the outgoing administration pushed hard to limit increased density in single-family zoned areas — and a new administration is set to change this.
However, what I’m particularly excited about is the plan to help families buy their first homes by creating a new refundable, advanceable tax credit of up to $15,000. Now, this isn’t really new. We saw versions of it under the Bush and Clinton administrations, and we also saw it in the aftermath of the Great Recession, but given the significant, demographically driven demand, it’s very exciting.
But there are some negatives, and the one I’m watching closely is the possible elimination of 1031 exchanges. For those of you who may be unfamiliar with this the program, it allows owners of a real estate investment to swap it for another without paying any federal income tax on its increase in value.
The new administration is also considering stopping investors from using real estate losses to lower their income tax bills.
Of course, there are lots of other tax-related proposals that may affect us all, but these largely revolve around changes to the income tax code, and I’m going to leave that topic alone for right now.
The bottom line is that there are proposed changes that will have an impact on housing — both ownership and rental — but I’m afraid that you will have to wait to get my detailed thoughts until the picture becomes a lot clearer.
However, rest assured that I’m keeping on top of this, and as soon as I know anything, I promise that you will too.
To get the big picture including all of the data, watch the full video above.
Matthew Gardner is the chief economist for Windermere Real Estate, the second largest regional real estate company in the nation.