Last week, the GOP released their long-awaited tax bill. Mind you, that this is not law, just a starting point for the conversation. However, with an already ailing Real Estate Market, maybe the best way to start the conversation isn’t by making it harder to own a home.
When the GOP released their new tax plan, it was supposed to be super helpful, and in some ways, it is. There is an awesome tax break for the majority of Americans, detractors on this have been given Four Pinocchio’s by the Washington Post’s Glenn Kessler. However, it also contains a major change in the way that real estate taxes work. Whereas, in the past we were able to write off mortgage interest up to $1.1 million mortgage, this will drop to $500,000. This is far above the average home value of the nation, it is far from the average of more expensive areas – areas like Chester County. People who work in these regions will suffer, and it will decrease the tax write offs for those looking to buy a new home, or do major renovations to their current home.
The proposed legislation is likely to have a few major effects on our market. Now, Chester Country has an average home value well above the national average. Chadds Ford Township actually comes in at an average home value of $461,900. With the average home value coming in right under the cap, people hoping to renovate their homes, or buy a newly built home, won’t be able to, without paying the higher tax rates. This will also make it hard for those living and building in these areas to sell their homes.
The American dream has always been about being able to move up, and finally get that dream home. This tax plan is going to make it harder for those who’ve worked their entire lives to buy that dream home, to finally get it. We should encourage these people to fulfill their dreams, not take away their benefits!
This shift is likely to cause a drop-in home sales, and a dip in home value as people dive under the caps. With time, the market will adjust, but Joe Lieberman expects for the homebuilders to take the hit as people won’t add on the extras that push them up above $500,000, or pay the new construction premium. However, while local builders are going to suffer, major real estate developers are likely to get a boost. With a 30% limit on interest deductibility for businesses, which is a benefit individuals can’t cash in on.
The tax plan is essentially shifting the benefits of property ownership from individuals to businesses. America was founded on Property Rights, and now we’re looking at a tax plan that is an encroachment on such a foundation principle, unless, of course, you’re a condo developer.
Giving tax-breaks to condo developers could be fine, in and of itself. With an economy shifting towards renting, it is good to have access to rental properties, but it should not come at the expense of the average American’s right to buy a house.
The economy is always shifting, and it is to be expected that things will change from the way that they have always been. We went from paper and pen to computers. Credit and Debit cards replaced the need to carry cash. The natural shift in the economy is good, it’s the symbol of people choosing how they want to live their lives. However, the government choosing to manipulate people away from owning homes is problematic. Vishal Garg, CEO of Better Mortgage told Forbes, “This tax plan would turn America from a nation of property owners into a nation of tenants renting from private equity-backed landlords… Why should corporate landlords get the deduction if your consumer homebuyer can’t?”
Now, the estimates about cutting taxes, on average, by $1,200 per family of four is great, but it cannot come at the expense of American’s ability to live their dreams. Chester County’s average home value is already about $100,000 above the national average. That means, our area will be disproportionately affected by the proposed tax reform. We need tax reform that keeps incentives for those looking to buy their dream home.