CBRE: Multifamily Sector Likely to Benefit from New Tax Plan
The U.S. multifamily market is poised to benefit from December’s income tax changes, reported CBRE, Los Angeles.
The tax benefits of renting compared to buying a home will increase in 29 of the 35 largest U.S. markets–up from just 15 markets before tax reform, CBRE said.
“The new tax policy’s raising of the standard deduction, combined with limitations on mortgage interest and state and local tax deductions, will significantly increase the attraction of renting versus buying housing,” said CBRE Senior Economic Advisor and Americas Head of Research Spencer Levy. “This could potentially provide a boon to multifamily investors in many markets.”
CBRE said the new tax plan, which makes the increased standard deduction of $24,000 for a married couple available to renters as well as homeowners, will significantly benefit renters in most of the country’s largest markets, thus encouraging renting over homeownership.
Major markets where multifamily real estate is likely to benefit the most include Miami, Philadelphia, Chicago, Denver, Seattle and Washington, D.C., the report said.
“Overall, tax reform could provide a short-term boost to the U.S. economy by reducing corporate and individual tax rates, encouraging foreign earnings repatriation and incentivizing new capital formation and investment,” Levy said. “How much it could stimulate overall economic growth in the long term is uncertain, but specific to the multifamily sector, it’s likely that we will see a boost in the multifamily investment market.”
After a record year for apartment supply volume in 2017, deliveries are starting to decelerate, reported Axiometrics, Richardson, Texas. “For the nation overall, the slowdown is relatively modest, as expected completion volumes land 4.3 percent shy of the 2017 count,” Axiometrics Analyst Kim O’Brien said.
But some metros will experience relatively sharp drops, Axiometrics said. Among the 50 largest metros, Houston, West Palm Beach, Fla. and Virginia Beach, Va. will likely see inventory additions fall by nearly 50 percent compared to last year. In Houston only 8,000 units of new supply are expected to hit the market this year–the first time that figure has fallen below the 10,000-unit mark in nearly four years. Houston saw the nation’s second-largest supply volume increase last year with nearly 20,000 new units. “However, as turbulence in the energy industry began to erode fundamentals in the market in 2016, construction starts plunged and activity hasn’t yet recovered,” O’Brien said.
Apartment deliveries could fall between 25 and 29 percent below 2017 levels in Philadelphia, San Jose, Calif. and Austin, Texas, Axiometrics reported. “Austin joined Houston on the list of metros leading the nation in apartment deliveries throughout the most recent cycle,” the report said. Texas’s capital has seen its inventory grow 18 percent in the past four years. But despite the significant drop in deliveries the city should see close to 7,400 new units this year–well above the metro’s historic average.
