Under the new bill, the proportion of homes worth enough to take advantage of the MID would decrease from 44% to 12.5%.
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Lobbyists, start your engines!

Senate Republicans unveiled a tax reform legislation proposal late yesterday that differs dramatically from a bill now heading to the floor of the House of Representatives as soon as next week.

Although the two Congressional branches' overhaul plans split with each other on--among a number of key policy measures--capping the mortgage interest deduction at $1 million vs. $500,000, neither bill offers meaningful support of an incentive for middleclass Americans' access to homeownership.

We spoke yesterday with National Association of Home Builders ceo Jerry Howard on the House Tax Cuts and Job Acts measure approved yesterday by the House Ways and Means Committee for a full vote on the House floor.

Here are the highlights from Howard's remarks on why he and the home builders group will oppose the House legislation in its current form, and will likely work to amend key areas of the Senate measure making its way in committee:

"I was very disappointed when the bill came out, and the ability of states to issue tax exempt bonds was gone. The low income tax credit remains, but without the tax exempt bonds, it's eviscerated. There's no commitment to a meaningful homeownership tax incentive.

"The corporate rates are reduced, but the pass-through rates, while being reduced, have such stringent rules on them that most of our small builders won't be getting much of a tax break at all. And even if they do, they won't be on a par with their corporate competitors." "No. 3, the personal tax cuts are sunset; they're temporary, while the corporate tax cuts are permanent.

"We felt like the whole framework that the President laid out was being ignored by the House Republicans, and we changed our position. Very unusual for us to change our position like that. But we changed it very aggressively."

On how the House plan will gut the mortgage interest deduction as an incentive and possibly devalue homes in markets across America:

"We are very concerned with the limitation on the mortage interest deduction. It's really limited in two ways. First, with the doubling of the standard deduction, most tax payers won't itemize. That means most tax payers won't use the mortage interest deduction. So, only the wealthy will use it.

"So, when you're talking about only the wealthy using the deduction, and then you're capping it at $500,000, you're looking at maybe 7 million houses in America, currently on the market, that are now overvalued, because they're counting on the buyers being able to use that deduction.

"That means that those homes [owners] will have to probably lower their prices in order to be sold. And history shows us that when you start lowering prices of homes in one price-point in the market, they all fall into place like a domino effect.

"So we think that the average homeowner's house value will decline somewhere around 5%--other organizations are saying as much as 10%. This fact alone makes us very concerned about the prospect of a housing recession."

Why the timing is bad, especially given housing's current challenges:

"You have an industry that's really at only 66% of capacity. You have a home buying population that's just getting back into the mindset where housing is a good investment, and then you put the prospect of this tax bill and its potential implications out there in the marketplace, the timing couldn't be worse."

Here's how low income housing development could be stifled by the House bill:

"Since the Tax Reform Act of 1986, the single best low income housing production program has been Section 42 of the tax code, the Low Income Housing Tax Credit. While the bill retains that part of the code in place, the bill takes away the ability of state governments to issue tax exempt bonds for housing. That's relevant, because when a developer goes in to use the tax credit program to build affordable rental housing, they almost always combine the tax credit with tax exempt bond financing.

"The tax credit provides financing at the back end of the deal. The tax exempt bonds provides front-end financing. The two have to link together in most cases in order to make the project pencil out. You take away that tax exempt financing, and the builders can get tax exempt bonds maybe from state governments, but those don't yield the same. Meaning the cost of production are going to be higher, meaning the rents have to be higher, which puts them out of compliance with the tax credit. It's a really really dangerous situation that the [House] tax bill has put the housing tax credit into."

A call for builders to act now:

"We intend to oppose the House bill in its current form on the House floor. Now, many people might say, 'why don't you try to get an amendment on the House floor?' My understanding is the process is going to be totally locked down and there won't be any amendments. So, on the House side, we're going to oppose the bill.

"We're still waiting to see [early yesterday] what the Senate bill looks like. Indications are that it may be more favorable. So, we haven't taken a position on the Senate bill as of yet. We are working the Senate to try and get them to understand how bad the House bill is.

"What we would ask [builder/members] to do is contact their member of the House of Representatives, urge them to vote against the House tax bill. It's bad for housing; it's bad for small business; it's bad for middle class America. On the Senate side, we would urge them to take a hard look at some of the pro housing provisions that people are talking about and include them in the bill.