Tax plan spells pain for Bay Area

Cap­ping mort­gage de­duc­tion likely to make al­ready tight hous­ing mar­ket even tighter

The Mercury News Weekend - - FRONT PAGE - By LouisHansen lhansen@ba­yare­anews­

Think the Bay Area hous­ing mar­ket is tight? It could get worse, ex­perts say, if a pro­posed Repub­li­can tax plan — slash­ing the pop­u­lar mort­gage in­ter­est de­duc­tion and lim­it­ing state and lo­cal tax write- offs — makes it into law.

The over­heated, high-priced hous­ing­mar­ket al­ready suf­fers from a lack of avail­able homes, grow­ing de­mand and limited op­tions for renters. The me­dian home price in the ninecounty re­gion in Septem­ber was $768,000, a jump of 15 per­cent from last year.

The Repub­li­can plan re­leased Thurs­day would cut the mort­gage in­ter­est de­duc­tion on new loans from $1 mil­lion to $500,000. It would also cap state and lo­cal prop­erty tax de­duc­tions at $10,000, lower than what many Bay Area res­i­dents pay an­nu­ally.

“It’ll have the­worst im­pact on the Bay Area of any place in the coun­try, be­cause hous­ing prices

are so high,” saidNela Richard­son, chief econ­o­mist for real es­tate bro­ker­age Redfin.

Over­all, she said, the tax plan pinches up­per-mid­dle class fam­i­lies. “There’s no good news for the Bay Area,” she said.

Repub­li­cans say the over­all tax pro­posal would ben­e­fit Amer­i­cans by slash­ing taxes for in­di­vid­u­als and busi­nesses. The GOP hopes to have the plan to the pres­i­dent by Christ­mas.

Jeff Bell, real­tor and chair of the Sil­i­con Val­ley As­so­ci­a­tion of Real­tors leg­isla­tive ac­tion com­mit­tee, said the tax plan could make a chal­leng­ing mar­ket even harder for first-time home buy­ers. The as­so­ci­a­tion es­ti­mated that the cut in mort­gage de­duc­tions would cost a Santa Clara County home­owner with an $800,000 mort­gage on a $1 mil­lion home about $4,800 a year.

Ex­ist­ing mort­gages are not af­fected. But Bell said the tax pro­posal would en­cour­age home­own­ers to stay put, lim­it­ing the num­ber of homes for sale in an al­ready-tight mar­ket. That, in turn, could lead to more bid­ding wars for sin­gle-fam­ily homes, he said.

“It’s clearly go­ing to have an im­pact on home­own­ers,” Bell said.

But re­cent mort­gage data sug­gests that­most Bay Area home­buy­ers are tak­ing out loans of less than $500,000, ac­cord­ing to real es­tate track­ing com­pany At­tom Data So­lu­tions. Less than 30 per­cent of the mort­gages and re­fi­nanc­ings for homes and con­do­mini­ums in Santa Clara County this year have topped $500,000. The me­dian price of a sin­gle fam­ily home in Santa Clara County last month was $1.075 mil­lion.

In Alameda County, about 22 per­cent of­mort­gages and re­fi­nanc­ing loans went for more than a half-mil­lion dol­lars this year.

The num­bers re­flect buy­ers, per­haps with higher in­comes or hefty home eq­uity, com­ing into the­mar­ketwith more cash for down pay­ments.

Lo­cal builders as­so­ci­a­tions de­clined to com­ment on the bill, say­ing they were still sift­ing through the de­tails, but Na­tional As­so­ci­a­tion of Home Builders CEO Jerry Howard said the pro­posal could throw the hous­ing in­dus­try into a re­ces­sion.

“What we’ve seen is that when house val­ues start to go down, it spreads to the next mar­ket af­ter that, and an­oth­er­mar­ket, and the next thing you know you have a hous­ing re­ces­sion,” Howard told CNBC.

Cal­i­for­nia Democrats bashed the tax plan Thurs­day, ar­gu­ing it would be a boon to cor­po­ra­tions while rais­ing taxes on some mid­dle-class fam­i­lies be­cause of the elim­i­na­tion of the state and lo­cal in­come tax de­duc­tions.

“Cut­ting the­mort­gage in­ter­est de­duc­tion cap is go- ing to make al­ready un­af­ford­able hous­ing in the Bay Area even less af­ford­able, which is just what we don’t need,” saidRep. Zoe Lof­gren, of San Jose. “Along with the in­crease in taxes on mid­dle­class fam­i­lies, it’s re­ally an out­rage.”

House Mi­nor­ity Leader Nancy Pelosi told re­porters the tax plan was a “shell game” on the Amer­i­can pub­lic. “If you’re the wealth­i­est 1 per­cent, Repub­li­cans will give you the sun, the moon and the stars.”

Gov. Jerry Brown wrote let­ters to Cal­i­for­nia’s Repub- li­can mem­bers of Congress urg­ing them to vote against the plan.

“The hur­ried tax pro­posal un­veiled by Congress to­day trans­fers in­come from in­di­vid­u­als and fam­i­lies to large and pow­er­ful cor­po­rate struc­tures,” he said in a state­ment. “This is bad eco­nomic pol­icy and bad for the Amer­i­can peo­ple.”

All 14of the state’sRepub­li­can House mem­bers voted for an ear­lier bud­get bill lay­ing the ground­work for the tax plan. But as of Thurs­day af­ter­noon, only a hand­ful of the del­e­ga­tion — who could cast the de­ci­sive votes on the plan — had pub­licly com­mented on it.

Rep. Mimi Wal­ters, R-Irvine, said the plan would mean “tax rates will fall, the stan­dard fed­eral de­duc­tion will dou­ble, and­mid­dle-class work­ers will ben­e­fit.”

Newspapers in English

Newspapers from USA

© PressReader. All rights reserved.