As we kick off 2017 with a new administration and the start of the 115th Congress, the National Association of REALTORS® (NAR) will ramp up its messaging on the social and financial benefits of homeownership. While NAR has long touted the benefits of owning a home, it’s more important than ever to send a strong message to lawmakers about NAR’s priorities as Congress considers tax reform proposals in 2017.
Studies have long shown the wealth-building opportunities that Americans get from becoming homeowners. A research paper by the Joint Center for Housing Studies at Harvard concluded that even after the decline in housing prices and the increase of foreclosures beginning in 2007, homeownership continues to be a significant source of household wealth, particularly for lower-income and minority households. The study notes that “efforts to save for a down payment lead to a large jump in wealth that is then further supported by at least modest appreciation and some pay-down of principal over time. Renters may have the opportunity to accrue savings and invest them in higher yielding opportunities, but lack strong incentives and effective mechanisms for carrying through on this opportunity…and those who made a failed transition from owning to renting are no worse off financially than those who remained renters over the whole period.”
Homeownership also has many proven social benefits. NAR research has shown that homeowners are more involved in their communities, have children who perform better in school and have lower crime and incidences of drug use in their households. With all of these proven benefits, it is not surprising that most millennials—the generation that everyone thinks is disinterested in homeownership—say they want to own homes themselves one day.
Many homebuyers count on taking advantage of the mortgage interest and property tax deductions after buying a home. These taxpayer benefits have made a tremendous difference in helping renters afford to transition to homeownership. NAR’s message to policymakers on tax reform has been to preserve the Mortgage Interest Deduction (MID). This message has been effective, as most Members of Congress are promising not to repeal the MID. Three leading tax reform plans released over the past few years by congressional leaders, two Republicans and one Democrat, each promise to protect the MID; however, we must take a closer look at these plans. While they promise to protect the MID, in reality, they take away the tax benefits of owning a home for most. How does this happen? These tax reform plans greatly increase the standard deduction, and, in the case of the GOP plans, repeal the deduction for state and local taxes paid. The result is that the one-third of people who now itemize, who are mostly homeowners, would drop to only about 5 percent. For everyone else, buying would offer little or no more tax benefit than renting. As a result, REALTORS® should ask their Members of Congress not simply whether they support the MID, but whether they will stand up to preserve the tax incentives for homeownership.
NAR has commissioned a study on the effect of tax reform plans like these on the housing sector and the entire economy. Specifically, NAR hopes to get data on how home prices and equity would be affected, as well as the change in the tax burden of homeowners versus non-homeowners by such a plan. This will further strengthen the argument that Congress should continue to protect tax incentives for homeownership.
Christopher Herbert, Daniel McCue, and Rocio Sanchez-Moyano. Is Homeownership Still an Effective Means of Building Wealth for Low-income and Minority Households? (Was it Ever?), 49, Joint Center for Housing Studies, Harvard University, September 2013.
National Association of REALTORS® Research Division. Social Benefits of Homeownership and Stable Housing. Published April 2012.
Sarah Young is the director of Real Estate Services for the National Association of REALTORS® (NAR).
This column is brought to you by the NAR Real Estate Services group.
For more information, please visit www.nar.realtor.
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