Welcome To The Center For Housing Risk Research
In 2017 Congress passed the 2017 Tax Cuts and Jobs Act (TCJA). This drastically changed the incentive to own a home especially in states that have high income and/or property taxes. There is now a strong incentive for wealthy individuals to leave that state and for less-wealthy individuals to rent. This tax change is altering the rate at which income tax revenues are being collected in several states and major cities in those states and represents an external shock to the U.S. housing market. As of 2020:Q1, this is causing home price appreciation in several major cities to slow down or even decline for high-tier homes.
RECENT ARTICLES, RESEARCH FOR THE U.S. AND INDIVIDUAL STATES
Income Tax Revenue Collections
TCJA So Far:
The 2017 Tax Cuts and Jobs Act represents an exogenous shock to the U.S. housing market and state tax revenue collections. Evidence so far on home price appreciation and FY18/19 tax revenue collection show a very slow, but rising impact. Historical evidence on similar shocks to housing and tax revenue collections provide mixed evidence as to what will happen next.
The Impact Of A 1% Increase In State Income Tax Rates On Net-outmigration Of High-Income Taxpayers In The Initial Year:
TCJA is a national law which does not change a state’s stated marginal tax rate. The impact, however, is to raise taxpayer’s income tax burdens in high SALT states. This negative financial change could motivate some high-income taxpayers to leave the state. We look at the experience of three states which raised their marginal income tax rate during some point in the years 2012 – 2018 to guage the impact of a 1% tax rate increase on net-outmigration.
Housing Market Risk
Impact Of TCJA On High-Tier Homes:
TCJA reduced the MID deduction. This has reduced the financial value of owning a home going forward. Consequently demand for expensive homes has fallen relative to what would have been had TCJA not become law. We find that as of Aug-19, home price appreciation for high-tier homes in high SALT states has been slowing.
Impact Of TCJA On Low-Tier Homes:
TCJA reduced the amount of mortgage size that one can deduct on federal taxes to the first $750,000. It, however, also raised the standard deduction thereby reducing the value of the MID on homes with smaller mortgages. It has changed the incentive to own even a small home.