This op-ed originally appeared in The Hill.
Today, the real estate industry finds itself caught between a rock and a hard place. On one hand, House Ways and Means Committee Chairman Dave Camp (R-Mich.) and Senate Finance Committee Chairman Max Baucus (D-Mont.) are leading the charge for tax and housing reform. On the other, we in real estate are wary of policy changes and the potential impacts on the recovering real estate market. But there may be a way forward. In January 2013, Smart Growth America (the parent organization of LOCUS: Responsible Real Estate Developers and Investors) released a study that surveyed 50 federal programs and found that between tax breaks, grants, loan guarantees and other programs the federal government spends or commits approximately $450 billion each year directly to the real estate market. The study found that much of that spending is uncoordinated and out of step with today’s market realities and demographic shifts.
As leaders in the real estate development community, we understand the positive impact federal involvement can have on the real estate market, and support a continued federal role in the sector. However, we also recognize the economy and real estate market have structurally changed, and policies and programs that spurred prosperity in previous generations can actually impede it today. We must ensure that every dollar invested in real estate is going to help the economic recovery – and that is why, we, LOCUS, a national coalition of real estate developers and investors in partnership with Smart Growth America developed a series of recommendations in a recent report, Federal Involvement in Real Estate: A Call for Action, proposing common sense reforms to existing programs.
For example, the rehabilitation tax credit currently excludes residential properties and other provisions greatly limit its usefulness in restoring neighborhoods hit hard by the foreclosure crisis. Addressing these barriers will revitalize neighborhoods still struggling with the pain caused by disinvestment and value loss. Similarly, many people that lost their homes are now in the rental market, joining millions of Americans looking for affordable housing options at a time when affordable supply is getting tighter. The Low Income Housing Tax Credit is a proven tool that Congress should expand and in doing so will leverage more private funds to address the problem. Lastly, current programs intended to promote home ownership often miss what is the biggest barrier for many – the down payment. Enabling more Americans to save for a down payment would go a long way toward making home ownership a reality.
The federal government should address these gaps in policy by reforming the enormous financial investment it already commits to real estate. For example, the federal government annually commits over $100 billion annually for tax expenditures including the real estate tax deduction, mortgage interest deduction (MID) and capital gains. Some of these programs have expanded beyond their original intent. Common sense reforms would preserve the benefit of these programs for future generations while ensuring every dollar is going to help the economy.
A thoughtful reform package will make down payments easier, provide more affordable housing, rebuild damaged neighborhoods, and also generate net revenues of $10, $20, or even $30 billion per year. This revenue could support other national priorities, like deficit reduction or lowering overall tax rates. However, change should not happen overnight and any reform proposal must recognize the millions of Americans who made financial decisions based on today’s existing programs.
As real estate developers and investors, we must embrace this rare opportunity to provide Americans with affordable housing choices, a simpler tax code, and reduced deficits while reigniting America’s real estate market to bring long-term economic growth and prosperity for generations to come.
Chris Leinberger is the president of LOCUS, and managing partner of Arcadia Land Company in Washington, D.C.; Kabacoff is the president of HRI Properties in New Orleans, La.; Baron is the president of McCormack Baron Salazar in St. Louis, Mo.; Larson is a managing partner of Bedrock Real Estate Services in Detroit, Mich.; and Glieberman is the president and CEO of Crosswinds Communities in Detroit, Mich.