A potential shift in federal tax regulations may significantly enhance residential development, addressing the pressing issue of housing shortages across the nation. According to Richard Green, a distinguished professor and director at USC’s Lusk Center for Real Estate, accelerated depreciation could serve as an effective yet cost-efficient method to increase the availability of housing. This approach has historical precedence, notably during the Reagan administration, where it successfully boosted housing supply despite initial opposition. Additionally, the discussion highlights challenges faced by developers in financing affordable housing units amid rising construction costs and interest rates. Experts emphasize the need for policy adjustments to support workforce housing while cautioning against measures that could inflate material costs or reduce available labor.
Potential Benefits of Accelerated Depreciation
The concept of accelerating depreciation offers a promising avenue for enhancing residential construction. By allowing investors to claim larger deductions upfront, this policy can make real estate investments more attractive, particularly for those with significant active income. This financial incentive can lead to increased investment in housing projects, potentially alleviating the nationwide shortage of affordable homes. Moreover, the historical success of similar policies in the past underscores its viability as a solution to current housing challenges.
During his presentation at the IREM Real Estate Forecast Breakfast, Richard Green highlighted how the 2017 tax code changes allowed investors to accelerate depreciation within the first year, significantly altering the financial calculus for real estate ventures. This provision made real estate an efficient tax shelter, encouraging greater investment in housing developments. Although this benefit is gradually being phased out, there is a renewed interest in reinstating or extending such policies to stimulate housing supply. Green, who initially opposed this measure during the Reagan era, now acknowledges its effectiveness in boosting housing production, demonstrating the potential benefits of revisiting past strategies.
Challenges and Considerations for Affordable Housing Development
Developers face substantial hurdles in financing affordable housing units due to soaring construction expenses and elevated interest rates. Sheldon Oppermann, CFO of New Land Enterprises, pointed out that while Milwaukee has an abundance of high-end apartments, the city desperately needs more affordable options. The higher costs associated with materials and borrowing have made it increasingly difficult to finance these necessary developments. City officials are actively working on solutions to address this issue, recognizing the importance of workforce housing for economic stability.
Furthermore, experts warn against policies that could exacerbate existing challenges. Trump's proposed tariffs on Canadian lumber imports could drive up construction costs, making it even harder to develop affordable housing. Additionally, mass deportations of undocumented workers, who form a critical part of the construction workforce, could severely impact the industry's ability to meet housing demands. These considerations highlight the need for balanced policy approaches that support both housing development and the broader economy, ensuring sustainable growth in residential markets.