Mortgage Deductions and the Prospects for More Affordable Housing

New Orleans   The Republican tax bill is all over but the shouting, and that will last for a long, long time. Given the unpopularity of the bill in all of the polls, it will reverberate into the 2018 midterm elections, possibly flipping control of Congress, and likely will still be an issue for many in 2020 as well. Given the complexity of the bill and the last minute, slapdash nature of some of the amendments, it will take a bit of unraveling before the full measure of its likely impact will be known.

One of the big headlines has to do with ratcheting down the mortgage interest deduction. For low-and-moderate income families, that’s an interesting issue. Last check, the conference split the difference between allowing it up to one-million for a new home in the Senate version versus a half-million in the House version, at $750,000 as the ceiling. For the vast majority of low-and-moderate income families around the country, there will be no impact at all. In fact the fears that topping off the deduction will lower prices on the coasts is probably good news for such families if there is some housing deflation for a change that trickles down.

In normal times, shrinking the mortgage interest deduction would be great news. In writing, Citizen Wealth, I was shocked at how much of the so-called social welfare segment of the federal budget is given to the lost tax revenue from this deduction, especially since so much of the benefit is skewed towards wealthier families buying more expensive houses more easily, and therefore harvesting the greater part of the benefit. It was hard not to advocate cutting the deduction in order to beef up other social welfare benefits for poorer families. Unfortunately, the Republican tax bill is doing the right thing for the wrong reason in transferring the increased tax revenue to a decrease in taxes for corporations and the superrich. Opportunity lost. When the pendulum swings back on taxes in the future, hopefully the deduction won’t change much, and the redistribution will be more equitable than in the time of Trump.

Analysts argue that housing developers get some benefits in pass through provisions that benefit Trump and his family and others. All of this should mean that more rental units are constructed. Sadly, without incentives for affordable housing developers, the new units, though much needed given the shortages in so many cities, will likely be market rate, and not wildly helpful in meeting the huge affordable housing crisis in the country.

An unanswered question and potential outcome of this tax bill, as I look for a silver lining, might be in helping move the economic culture away from the white-picket fence of home ownership to increased programs for stable, long-term tenancy and what those units and communities will require. Maybe, just maybe, that will force the question of affordable housing and even public housing higher on the policy and budgeting agenda and allow home ownership desires to extend more towards rehabilitating the vast stock of abandoned housing and infill lots in many cities in urban America.

Hope springs eternal.


Cleveland’s Dilemma: Rehab or Demo

Cleveland   Every month in Cleveland, the Vacant & Abandoned Property Action Council, convenes. All the seats around the giant meeting room of the Neighborhood Housing Services were filled with rows of chairs surrounding them, packed as well. Sandwiches and cookies were available, but this was not a group of people who were there for the lunch choices. This was a who’s who assemblage of people from the city, county, Federal Reserve, legal offices, community developers, neighborhood organizations, and nonprofits of all shapes and sizes who had an interest in what was happening to property in Cleveland from soup to nuts.

I was honored to be invited to talk about the ACORN Home Savers Campaign, because the group was discussing various proposals for action on land contracts at the local level in places like Youngstown as well as amendments for legislation proposed in Columbus to reform the existing laws. The “Bad Apples” Committee that was looking into rouge real estate operators had changed its name to the Investors Committee, and their work was exhaustive.

All of that was good stuff, but the most interesting pieces of the puzzle that were beginning to fall in place for me, as I listened to the back and forth in the meeting to the discussion, was the interchange between committee members and a member of the county council’s staff on the budget issues involving demolition funds for dilapidated housing. There was a $9 million dollar item, ostensibly for demolition on the 2019 budget line, but some the group wanted to know if that could be spent in 2018, and if so could they tap into another source lying in reserve if they exhausted that allocation. The spokesperson for the County, trying to navigate his way through the questions, assured them that the number was a placeholder and was a 2-year number for expenditure in both years, but was also clear that the council was increasingly looking at the issue, which meant feeling the pressure, to use a pile of the money for rehabilitation of houses as well.

Talking to organizers in the neighborhoods, this was an issue as well with them leaning increasingly towards rehab at this point. Reading the reports from the Thriving Communities Institute provided the background data became clearer for me. Of the existing vacant housing stock of more than 15,000 houses, recent reports by Frank Ford, their senior analyst, put the number that could be rehabbed at over 8000 with the other roughly 7000needing to be demolished. Other reports by the Institute made the case more dramatically that they believed that demolition was the first order of business in saving a neighborhood with rehab following behind, based on their analysis of what moved property values and tax revenues. Not to put too sharp a point on the debate, but their argument was protect the demo money for demo, and go raise other money for renovation. I should add, “if you can.”

Perhaps they are right on the numbers, but it’s easy to understand from the politicians perspective and the neighborhood-based organizations that are dealing with residents every day, asking them to wait to see progress on their own homes, where getting loans for rehab is almost impossible statistically, for some hope in the future by and by, while they watch – and wait – as more houses are reduced to rubble, creating more vacant lots, is not a winner unless some realistic balance is achieved ASAP.