External Affairs

[Dr. Victor Calanog, Ph.D., CRE]

The recent tax plan also affects affordable housing directly through LIHTC – which worked largely because it was incentive compatible for sources of finance, which could deduct financing for LIHTC via tax credits.

Said tax credits are now worth much less given the lowering of the corporate tax credit.  We estimate that the supply of new affordable LIHTC units will decline by 40% over the next five years as a result, unless countervailing subsidies are provided.

[Mr. Hugh Kelly, Ph.D., CRE Emeritus]

Rising interest rates will impact affordability, as residential mortgages are more sensitive to Fed rate adjustments than commercial cap rates may be. I’ll be looking at NAR affordability measures to see where we might see a squeeze. Also, US metros are exposed to a general price reduction of 4%-6%, according to Moodys Analytics, under the Tax Act passed in December. This will impact the household balance sheets of the 64% of US that are homeowners. I don’t think many yet realize how the Tax Act gives a small increase in after-tax income, but trades that for a bigger hit on household wealth.

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