Welcome to the Center for Housing and Tax Research

As of January 27, 2022 deaths in America related to the coronavirus (CV) have accelerated again, and have crossed the 876,000 mark. Many states have tightened again and “things" in the U.S. are moving to a confused new normal. State budgets for FY21 have done better than expected – dropping only by 0.7% according to estimates by the Census Bureau. A number of things have gone right: 1) Early action by the Federal Reserve to shore up the capital markets propped up incomes, kept businesses afloat and reduced unemployment; 2) cash given to consumers in the two federal stimulus package kept low-income consumer buying; 3) stock market gains during the pandemic increased the wealth of the middle- and upper-income classes and contributed to them continuing to spend and 4) many states have diversified economies with workers who could continue to work from home. However, in a bid to find new tax revenues to help the hardest hit, the District of Columbia is proposing to raise the district’s marginal income tax rate. Under the budget provision, the top marginal rate in the District of Columbia would be 10.75 percent, matching New Jersey’s recent tax hike and falling just under New York’s 10.9 percent (the result of the only other income tax increase this year), Hawaii’s 11 percent, and the 13.3 percent top rate in California.

People continue to desperately search for detached housing, either to feel safe from infection or because they need additional space to work at home. This along with continued low mortgage rates and stock market gains have kept the demand for SFR homes very strong. The Case-Shiller 20 city home price index increased by 18.8% YOY for Nov-21. It simultaneously reduced the demand for apartments in multi-unit buildings lowering rents in several cities. Higher home prices are leading to some landlords to charge higher rents for detached rental properties and this could add to inflationary pressures.

Investor Impact on the SFR MKT

Do Investors Compete Against Home Buyers Who Intend to Live in the Property and Thus Raise Prices?

Recent research shows that investor purchases impact owner occupied purchase prices at time t – the time when the investor purchase the property.  The CHTR research shows that each one unit higher share of investor purchases in a CBSA raises HPA on owner occupied properties by 2.5 bps. In a city like Chicago, IL with an investor share during Mar-21 of 32 percent, potential homebuyers paid 80 bps more to own their home had investors not participated. This would have added an extra $1,600 to house that was selling in 2020 for $200k and sold for $211.4k in 2021 but might have sold for $209.8k.

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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.

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Single Family Purchase Market

The Impact Of Credit Score On The Rent/Buy Ratio

Recent research shows that low credit scores can raise the rents that renters have to pay relative to cost of owning a home. If rents are higher than the cost of owning and the renter does not /can not buy, then there is a wealth transfer from the renter to the landlord. If the landlord does not live in that same city, then wealth is transfered out of the city and the city become poorer.

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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.

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