During the election campaign, President-elect Joe Biden promised a tax credit of up to $ 15,000 for first-time home buyers. He also called for a more robust federal role in closing the racial divide in home ownership.
Housing policy was never the focus of the 2020 campaign, but real estate experts expect changes after Biden succeeded President Donald Trump in the Oval Office. The most dramatic difference will likely come in the form of a renewed federal focus on racial equality and anti-discrimination law.
Trump largely downplayed racial differences in a housing market where black home ownership rates are well below whites. Biden, on the other hand, makes social justice in housing the focus of his real estate platform.
“This will be a completely different approach,” said Ken Thomas, president of Community Development Fund Advisors in Miami and author of The CRA Handbook.
Jerry Howard, executive director of the National Association of Home Builders, comes to a similar conclusion. “You have already seen signs that the era of deregulation is over,” he says. “That will undoubtedly increase housing costs. “
Tax credit for first-time buyers?
For consumers, the proposed tax break would be the most visible change. Biden has announced plans to revive a temporary first-time tax credit that was waived during the Great Recession and then quickly disappeared.
This loan was part of the Housing and Economic Recovery Act signed by President George W. Bush in July 2008. The $ 7,500 loan was increased to $ 8,000 the following year in a bill signed by President Barack Obama. The tax break ended in 2010.
This incentive was aimed at stimulating demand during a property crash. There is no crash now. Instead, rising home prices have made affordability a challenge for many potential buyers
The Bush and Obama programs granted a 10 percent tax credit on the house’s purchase price, though taxpayers didn’t get the incentives until they filed their tax returns months after the purchase. On his campaign website, Biden presented his tax credit as an instant form of down payment assistance.
“This tax credit will be permanent and advance payment, which means that home buyers will receive the tax credit on purchase instead of waiting for assistance when they file taxes the following year,” wrote the Biden campaign on its website.
Lawrence Yun, chief economist for the National Association of Realtors, praised the tax credit that could be made available to buyers upon completion. He cautioned, however, that uncontrolled demand for single-family homes is driving prices higher and stimulating buyers could only further upset the imbalance between scarce supply and growing demand.
“The homebuyer tax credit in itself is good news, but it’s only half the news,” says Yun. “The rest of the news is that we have a housing shortage. If we just add more fuel to the demand fire without increasing supply, house prices will go up even higher. “
The Home Builders’ Howard makes a similar caveat: the new build hasn’t kept up with supply, and property prices are rising sharply. “At the moment we are in a very, very popular housing market,” he says. “If you do something against the demand without doing something for the supply, you are giving up the whole question of the affordability of housing.”
Biden has to negotiate the details – like how and when the money will be delivered and who is eligible – with Congress. While the Democrats have a majority in the House of Representatives, control of the Senate depends on the results of two runoff elections in Georgia in early January.
It’s possible that partisan disagreement wouldn’t stall the proposal, says Mark Hamrick, senior economic analyst at Bankrate.com.
“A stable and resilient housing market should be a bipartisan issue,” says Hamrick. “I don’t think Republicans would spend much time opposing this type of legislation. It is clear that people who live in red and blue states want a home of their own. “
The National Association of Home Builders supports the first-time buyer tax credit, but Howard offers this reality check: Such a move would almost certainly be part of a broader tax reform. But if the Republicans hold the Senate, any comprehensive tax bill there seems doomed to die.
Biden has also called for an end to the so-called § 1031 tax relief for real estate investors. The provision allows owners to sell property with no capital gains tax if they use the proceeds to purchase other properties. Although such a change would not directly affect consumers, Yun warned that it could hinder the supply of housing as landowners are less willing to part with plots that could be used to build homes.
A new focus on social justice
Biden also calls for a return to the Obama-era approach to anti-discrimination rule enforcement. In one example, the president-elect said he would bring back the “Affirmatively Fördering Fair Housing” rule, which is pushing local communities to address housing segregation.
Housing and Urban Development Secretary Ben Carson called the rule “impracticable and ultimately a waste of time” in July. Trump followed on Twitter, where he stated, “I’m delighted to announce to all of the people living their suburban lifestyle dream that you are no longer pestering yourself or hurting yourself financially by building low-income homes in your neighborhood will.”
Biden has also pointed out discrimination in assessments. To counter low ratings in minority neighborhoods, Biden says he will push for training to combat racial prejudice among reviewers.
The valuation industry standardization group accepts Biden’s assessment.
“While the Appraisal Foundation’s Uniform Standards of Professional Appraisal Practice have specifically banned discrimination since it was first written in 1989, it is clear that we need to do more,” wrote Dave Bunton, president of the Appraisal Foundation, in a pre-election column.
The National Association of Realtors is similarly poised to focus on racial inequality in housing. “It’s the right thing,” says Yun.
Biden’s platform calls for a return to aggressive enforcement of federal laws like the Home Mortgage Disclosure Act and the Community Reinvestment Act.
“To the extent that the Trump administration has tried to undermine this regulation and its enforcement, a Biden administration will clearly make this a priority,” Hamrick said. “It’s kind of a residential equivalent of Black Lives Matter.”