Should renters and homeowners have a tax break?

By Dr. Larry Bartels, CNN Health The GOP wants to cut taxes for all Americans, in part to improve the economy and ease the high cost of housing. In general, the popular Republican position…

Should renters and homeowners have a tax break?

By Dr. Larry Bartels, CNN Health

The GOP wants to cut taxes for all Americans, in part to improve the economy and ease the high cost of housing. In general, the popular Republican position is that renters and homeowners should both get a tax break. But there are some strong arguments in the other direction.

From individual tax returns, some homeowners have reported that the loss of the mortgage deduction has caused significant income reduction, while renters have had no such impact. And of course home values have declined, reducing the purchasing power of everyone. According to the Congressional Budget Office, home price appreciation of 3 percent over the last five years (excluding the home price bubble of 2007-2008) has reduced the effective purchasing power of most homeowners, but not all — 12 percent of households receiving the mortgage interest deduction in 2017 could not adjust their consumption to compensate for this loss of income.

Against this backdrop, there are strong arguments on behalf of rent control, at least in urban areas. Rent control does the same thing that is done by the tax-payer-funded Rent Guidelines Board (REB)—reversing the incentive for real estate developers to build and increase supply and housing affordability.

So rent control helps, even if the increase is too low to be sufficient to keep up with the costs of housing. And it will also help relieve the problem of the lack of available homes — nothing better shows up as government burden than the gradual loss of valuable land to development that occurs with every building.

If rent control is intrusive, there are arguments against it. Rent control may discourage development. If landlords of large properties in gated communities are required to accommodate smaller landlords, such as those without the same ability to provide security and pest control, it will reduce the demand for greater rental housing availability.

Since the REB can have only one vote per particular property district, any effect on the number of rental units or the size of units per individual landlord in each district is likely to be overstated.

But how do we account for the predictability of such impacts? A one-vote allocation creates an abuse risk. But most countries have an elected board of trustees. How much more prudent would it be to give an elected board the opportunity to correct in advance the problems that arise with a property that is one vote away from being rent controlled? The cost of identifying such vacancies, identifying the tenants and assigning an adequate discount for the property, may be too high.

The concern about the cost of relocating tenants must be balanced against the possibility that landlord, as regulated, will find it easier to relocate tenants who need to move to a job in another city. Those apartment complexes with the highest turnover might be hardest hit by rent control and the steep decline in housing prices may magnify the problems.

The answer to this problem will depend on the composition of the Board of Trustees. It will require a draft proposal of the board proposal, based on census data from the same census data base as provided to the rent board, but may be able to involve other entities in the process to reduce the risk of abuse, even if it means paying for an investigative team to investigate cases of abuse.

Dr. Larry Bartels is an assistant professor of government at Princeton University and the author of “Rising Above It: How Privatization, Innovation, and Entrepreneurship are Building a Better America.”

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