when preparing their taxes, essentially nullifying most
of the remaining tax incentives for homeownership.
NAR reports that the change means “there will be no
tax differential between renting and owning for more
than 90 percent of homeowners.”
Scott Olson, executive director of the Community
Home Lenders Association, says the curtailing of tax
benefits for homeownership under the tax-reform
package — with the doubling of the standard deduc-
tion representing the biggest single impact — will, in
time, lead to changes in people’s behavior in the market.
“It will soon become apparent, and common wisdom, that basically you don’t get any tax benefit from
owning a home,” Olson says. “… It’s reasonable to
conclude that this will depress the demand for home
“It’s likely to have a negative impact on the number
of mortgages overall,” he adds, “because people will
begin to realize that they’re not going to get the same
level of tax benefits from buying a home, or even own-
ing a home.”
Yun adds that the tax overhaul has the net effect of
making renting a more attractive option than buying
a home for many individuals. “Due to the doubling of
the standard deduction, most renters will benefit and
could delay homebuying as there is now less of a finan-
cial tax incentive to buy,” he says.
For professionals in the mortgage industry, “anything
that reduces the demand for their product is going to
make them unhappy,” says Eric Toder, co-director of
the Urban-Brookings Tax Policy Center. He adds, how-
ever, that he is personally not sure why the tax code
should be used to subsidize a particular industry sec-
tor (housing) — and in a way that he says essentially
“encourages people to buy bigger homes.”
American Dream, at least as it relates to homeownership.
For more than a century, U.S. tax policy has included
incentives to encourage homeownership, the National
Association of Realtors (NAR) points out in its overview of the recently enacted tax-reform package. The
impact of the changes included in the recently enacted
tax overhaul, however, “will be negative, as the incentive for homebuying becomes less important,” NAR
Chief Economist Lawrence Yun says.
Among the major housing-related highlights of the
new tax-reform package, according to NAR, are the
■ ■ The standard deduction will be nearly doubled, to
$12,000 for individuals and $24,000 for joint filers.
■ ■ The mortgage-debt cap for interest deductibility
for new loans will be reduced to $750,000, down
from $1 million.
■ ■ The existing interest deduction for home equity
debt will be eliminated — unless the funds are used
for significant home improvements.
■ ■ Tax deductions for local and state taxes, including property taxes, will be capped at $10,000
Moody’s Analytics recently estimated that the impact
of the tax-reform package will be to reduce home prices
by 4 percent by the summer of 2019 — meaning prices
at that point will be 4 percent lower than they would
have been absent the tax overhaul.
Attom Data Solutions projects that some 100,000
homebuyers annually will be negatively impacted by
the lowered cap for mortgage interest deductions. The
real estate research service also estimates that some
4.1 million Americans — most located in high-tax states
along the coasts — now pay more than $10,000 in property taxes annually and stand to be negatively impacted
by the new cap on local and state tax deductions.
“In New Jersey, 30 percent of homeowners pay more
than $10,000 in property taxes,” Yun says. “Therefore,
[potential] homebuyers in New Jersey, along with
other high property-tax states like California, Connecti-
cut, New York and Massachusetts, will hesitate. So, no
doubt there will be weakness in home sales and price
cuts in some states.”
The biggest single tax-reform impact on the future
of the housing market, however, according to multiple
experts, is the doubling of the standard deduction.
That single change is expected to result in many home-
owners finding it no longer makes sense to itemize
Toder says the current tax overhaul will likely
increase, rather than reduce, the demand for future tax
reform, however. Given the curtailing of tax benefits
for homeownership put in place under the recently
enacted tax package, he says it will be far easier to
roll back the remaining homeownership tax perks in a
future tax-reform push.
“When people are looking at the tax system again,
they’ll see a world where there aren’t very many people
using the mortgage interest deduction, for example,
and those that are will be much more concentrated at
the higher end of the income scale,” Toder says. “And
that might make the mortgage interest deduction an
even bigger target for reform in the future.”
The fundamental changes in tax policy embodied
in the new tax law that took effect this year may or
may not prove to be beneficial for the larger economy.
Time will tell.
Regardless, according to some industry experts,
a major consequence for the housing market of the
recently curtailed tax benefits for homeownership
could well be to diminish housing’s role substantially
as a vehicle for creating wealth for a wide swath of the
“Homeownership is currently at near 50-year lows,”
Yun says. “Over time, it could fall further, because there
is less incentive to buy [as a consequence of the tax
Yun adds that even though U.S. home values are
still likely to rise over the long term, if homeownership
overall declines, “given that homeowners have net
worth far exceeding that of renters, the wealth in-
equaity [in the nation] will widen even further over
By Bill Conroy
“It will soon become
you don’t get any
tax benefit from
owning a home.”
Community Home Lenders Association
New tax law is expected to change homebuying behavior
Bill Conroy is editor in chief of Scotsman Guide Media.