How the new tax bill will affect multifamily
Many in our industry are wondering how the new tax bill will affect multifamily. We strive to separate our political selves from our professional selves, but the new tax laws are impacting our professional selves "bigly."
We are not going to hide our joy that our boutique branding and design shop could be sending a smaller check to dear old Uncle Sam. That has potential to open up our budget for some fancy new fonts and increase our visits to our favorite baristas.
Tax Bill and Multifamily
The new tax code also has the potential to boost multifamily developments and shift how we define multifamily demographics. With the reduction of the Mortgage Interest Deduction, and new limits on state and local taxes, more Americans could forgo the dream of homeownership in favor of renting.
The demographic shift in renters could impact a number of groups, including:
Broader Age Range
We typically envision urban, luxury apartment dwellers in the 25 to 35 age range. These young professionals have high-paying jobs and seek a city lifestyle before they settle down in the suburbs.
That renter profile continues to expand as the market changes, however. With less financial incentive to buy the picket fence on the tree-lined street, renters may opt to stay in their urban apartments. They will continue to take advantage of stellar amenity packages and the convenience of urban living into their 40s.
In addition, more baby boomers and retirees have entered the urban rental market, seeking the convenience of walkable city centers and lower maintenance living.
According to Forbes:
“An increasing trend for baby boomers and the empty nester population is to actually move out of the suburbs and into urban environments, often choosing to rent instead of buy…
It’s important for property managers and investors to take into account both the older demographics and the youngest demographics (Gen Z) when determining the most appealing spaces, amenities and how to align service with tenant expectations.”
Along the same vein, with homeownership not as incentivized, we could see more families as a target demographic in a multifamily setting, especially if they are in good school districts. So move over pet spa, the Tot Lot could be making a huge comeback.
“What is different is that taxpayers will no longer need to own homes to claim lucrative tax savings. In other words, the financial advantage of owning rather than renting your own home could diminish or disappear for millions of Americans.”
For families with mid-level or high incomes, homeownership offers fewer tax advantages than it once did. While some families will still choose to buy for other reasons, renting will make more sense for others.
Renters by Necessity
As if homes in coastal markets weren't pricey enough, the new tax law makes committing to a mortgage in these areas even more daunting. Experts report that an average mortgage payment in San Jose, Calif., rings in at more than $5,000 per month. Families would need a household income of $216,000 to cover that cost.
The median home price in the city jumped 18.6 percent within the past year to a little more than $1 million, and Zillow expects an additional jump of 8 percent this year. The average rent for a three-bedroom apartment in San Jose rings in at about $3,300.
Without the mortgage interest deduction to sweeten the deal, renting may be in their financial reality for the foreseeable future. While San Jose represents an extreme example, the homeownership picture has changed dramatically in many markets across the country.
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in 2018, we look forward to being part of the multifamily industry as these new laws shift and shape the future of renting in the United States. We have no doubt operators and developers will respond in unknowable, creative ways and make renting great again.
To learn more about our multifamily marketing work, contact us.