Renting homes better than buying under new U.S. tax plan, study says
Although owning property in the U.S. has a checkered past in terms of separating people (and voters) by economic class, it looks like renting living units instead will see its day in the sun — for married households, at least.
A new study from CBRE found that Portland's apartment sector is likely to see a boost from the recently enacted U.S. tax plan.
The CBRE report analyzed the implications of tax reform on the multifamily sector in the largest 35 U.S. markets with a population of at least 2 million, and found the reform is poised to benefit the multifamily investment market.
CBRE is a Fortune 500 and S&P 500 company and is one of the world's largest commercial real estate services and investment firms.
Portland is the No. 7 metro in comparing deductible state taxes and homeownership expenses from 2017 to 2018, just below New York. Since the 2018 standard deduction is much higher than last year's, the total deductible state and local tax and mortgage interest is more now, too.
"The new tax policy's raising of the standard deduction, combined with limitations on mortgage interest and state and local tax deductions, will significantly increase the attraction of renting versus buying housing," said Spencer Levy, CBRE's senior economic advisor and head of research in the Americas. "This could potentially provide a boon to multifamily investors in many markets."
Levy was the keynote speaker at Portland State University's 13th annual real estate conference that took place at the downtown waterfront Marriott Hotel on May 18th. Headquartered in Los Angeles.
The tax reform opened up the standard deduction of $24,000 for a married couple also available to renters instead of just homeowners, a benefit that will encourage renting over homeownership in most of the country's largest markets — 29 out of the 35 analyzed, according to the study. Prior to the tax plan, only 15 of these had seen a greater benefit from the standard deduction than from specific itemized deductions offered by homeownership.
Major markets where the multifamily sector is poised to benefit include Miami, Philadelphia, Chicago, Denver, Seattle and Washington, D.C. — where tax benefits of owning a home are significantly lower.
"Overall, tax reform could provide a short-term boost to the U.S. economy by reducing corporate and individual tax rates, encouraging foreign earnings repatriation and incentivizing new capital formation and investment," Levy said. "How much it could stimulate overall economic growth in the long term is uncertain, but specific to the multifamily sector, it's likely that we will see a boost in the multifamily investment market."
This could be good news for millennial households, who rent instead of buying (the norm for older generations who got married young and bought houses soon after) for numerous reasons including socially acceptable co-habitating, lingering student loans, wages that don't keep up with inflation and astronomical real estate costs.
Read the full study online: bit.ly/2kiUh98
By Jules Rogers
Reporter, The Business Tribune
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