Politics
Political Power Shift Could Generate Changes in the U.S. Luxury Housing Market – Barron's
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There’s a new political party in charge in Washington, D.C., one that hopes to make some big changes in the U.S. economy, including tax reform. While the initial priorities of the Biden administration and Congress focus on mitigating the devastating impact of the pandemic, the new political dynamic could eventually create a shift in the luxury housing market.
“The luxury market has done very well in recent years thanks to low mortgage rates and to the performance of the stock market, which is influenced by politics,” said
Danielle Hale,
chief economist for realtor.com in Washington, D.C.
Political actions have both a direct and an indirect impact on the housing market.
“We’ve never been at a time when the political landscape has continued to seem so uncertain,” said
Frederick Peters,
CEO of Warburg Realty in New York City. “Politics has an effect on the stock market, which in turn has an effect on the luxury real estate market.”
More: With Major U.S. Luxury Markets on the Upswing, the Window to Find Pandemic Discounts Is Closing
While most of the Biden administration’s initial housing policies focus on the affordable housing crisis,
Marco Rufo,
a partner with The Agency real estate brokerage in Los Angeles, said that the possible extension of the federal eviction moratorium beyond the current date of March 31 could have implications for the higher end of the housing market in the future.
“Most of our buyers are extremely wealthy and many of them own lots of property that they rent to tenants,”
Mr. Rufo
said. “If policies are put in place that reduce their ability to collect rent on multiple properties, that could have a negative impact on their net worth and willingness to upgrade into more expensive properties.”
Another political issue that’s already had a major effect on luxury housing markets is tax reform.
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Tax Reform and the Luxury Residential Market
The Tax Cuts and Jobs Act that went into effect in 2018 has several provisions, such as lower tax rates, a higher lifetime estate and gift tax limit, and a higher standard deduction that are set to expire at the end of 2025. Democrats are anticipated to address those expiring provisions and other tax issues eventually.
“Most of the tax reform ideas impact people with incomes above $400,000 and capital gains of more than $1 million, the demographic that matches our homebuyers,” Mr. Rufo said. “If everything was enacted, it probably wouldn’t mean that people won’t buy homes, but it could mean that they pause a little to consider their options.”
Some potential tax reforms include:
· Lifting SALT deduction limitations. The 2018 limitation on the deductibility of state and local taxes (SALT) to $10,000 was significant in markets like New York and California, said
Mr. Peters,
who anticipates a positive impact on those tax-heavy locales if that limit is lifted by Democratic tax reform efforts.
“It’s not just a matter of money and getting a larger tax deduction, it’s also the perception,” he said. “It would make people feel less anxious about buying in states with higher taxes.”
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In the Washington, D.C. area, where the luxury market mostly centers on homes priced between $1.5 million and $2.5 million, the SALT deductibility cap slowed the pace of sales, reduced luxury listings and reduced home buyers’ budgets, said
Jeff Detwiler,
president and CEO of Long & Foster Real Estate in D.C.
“We saw $2 million homes sit on the market for a year or longer,” he said. “Now we have only a two-month supply of luxury homes because of migration trends and a frothy market in 2020. If the SALT cap is lifted, we’d see even more demand because those deductions directly impact the finances of our buyers.”
Migration trends after the SALT cap meant that more people left high-tax states to move to lower tax states like Florida and Texas.
“If your SALT deductions aren’t limited, then you can be agnostic over where you live,” said
Melissa Cohn,
executive mortgage banker with William Raveis Mortgage in New York City.
More: In Shift Away From Suburbs, Townhouses and Boutique Apartment Buildings in High Demand in Cities
· Higher income tax rates. Increasing income taxes always has a negative impact on the luxury market,
Ms. Cohn
said. However, she doesn’t expect tax rates to rise in the near future.
“The pandemic changed everything, and the focus now is on rebuilding the economy. So even if the Democrats want to raise taxes eventually, now is not the time,” she said.
An increase in tax rates for high earners probably won’t take buyers out of the market, said
Mr. Detwiler,
but it could reduce their price point by several hundred thousands dollars or more.
“The good news about tax reform that would cause wealthier people to pay more is that it would be a federal issue that people can’t escape by moving to Florida,” Mr. Peters said.
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· Higher capital gains tax rate. While home sellers can exclude up to $250,000 in profit if they’re single and up to $500,000 if they’re married from a capital gains tax on their primary residence, an increase in the long-term capital gains tax rate could still hurt the luxury housing market. Currently, the highest capital gains tax rate is 20%.
“If the capital gains tax rate is increased, that could have negative repercussions,” Ms. Cohn said. “People wouldn’t want to sell their homes, especially if they hoped the rates would roll back again in the future, and that would limit the supply of homes.”
Mr. Detwiler said he thinks a higher capital gains rate could have a bigger impact on the second-home market. Currently, the long-term capital gains tax rate depends on your income and is either 0%, 15% or 20%. Single taxpayers who earn $441,450 or more and married taxpayers who earn $496,600 pay the top rate.
“Sellers have to pay capital gains taxes on the profit of the sale of a home that’s not their primary residence,” Mr. Detwiler said “In addition, if people have to pay more taxes on other gains, that shrinks their portfolio and changes how much they’ll want to pay for a house.”
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· Elimination of 1031 Exchange option. A 1031 Exchange allows investors to swap one property for another and postpone paying capital gains tax on the sale until you sell the next property.
Without the 1031 Exchange, investors would have less money to put into their next deal, Ms. Cohn said.
“Getting rid of the 1031 Exchange would have a direct impact in our area because we have a lot of luxury rentals at $40,000 to $50,000 a month in Los Angeles,” Mr. Rufo said. “Owners of these properties would pull back from buying and selling them if they had to pay capital gains on the transaction, and that would have a direct impact on property values.”
More: Buyers in Hot Markets May Want to Move Quickly Before Competition Increases in the New Year
Broader Impact of Politics on the Housing Market
Real estate market performance is tied to the fundamentals of supply and demand, which can also be influenced by political policies, realtor.com’s
Ms. Hale
said. (Mansion Global is owned by Dow Jones. Both Dow Jones and realtor.com are owned by News Corp.)
“Demand is based on income and consumer confidence,” Ms. Hale said. “If wealthy households see their income go down due to a higher tax burden, it’s conceivable that their spending could decline and that would impact the housing market.”
However, a growing economy, especially one that drives stock gains, could mean after-tax incomes are higher for wealthy households, she said.
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“The way politics matters the most is how it makes people feel,” Mr. Peters said. “As real estate agents, we’re selling people a belief in their future. That’s a lot harder to do when people feel freaked out by the present. They’re less likely to take on large financial commitments when they’re concerned about the future.”
Personally, Mr. Peters is optimistic about the impact of the new power configuration for his market in New York.
“It’s not entirely irrelevant that the new Senate majority leader [
Charles Schumer
] is from New York,” he said.
This article originally appeared on Mansion Global.
If you’re fed up with high Canadian gas prices, you can at least be grateful that you don’t live in British Columbia.
Unless you do live in B.C. In that case, then go ahead and be mad as hell.
British Columbians are once again experiencing particular pain at the pumps as rising oil prices drive up the cost of gasoline.
It’s an extra-nasty case of gas-fuelled road rage in B.C., home to North America’s highest gasoline taxes.
How does the taxman sock it to B.C. drivers? Let us count the ways.
There’s the B.C. carbon tax, once fiercely opposed by NDP Premier John Horgan.
When he was on the opposition benches, Horgan used to rail against the burden of the provincial carbon tax on B.C. families. Now the tax has risen steadily on his watch, with further increases set to kick in.
There’s also the B.C. Motor Fuel Tax. And the B.C. Transportation Financing Authority fuel tax. And Metro Vancouver’s TransLink fuel tax.
Ottawa takes a cut, of course, courtesy of the federal fuel excise tax.
Don’t forget the sour cherry on top: the federal GST, charged on the entire gas purchase, including all the other taxes.
Add it all up and Metro Vancouver drivers are getting hosed at the gas pump, creating a recurring political problem for Horgan and his B.C. government.
Now that he’s a convert to the carbon tax, you might think Horgan would be pleased that high gas prices would discourage the use of polluting vehicles.
But Horgan has walked a political tight rope, jacking up the punitive carbon tax while griping about high gas prices at the same time.
His theme: Don’t blame me, blame greedy oil companies.
“This is not a tax question, it’s a gouging question,” he said. “This is not about taxation.”
To drive the point home, the Horgan government recently passed a law forcing oil companies to reveal secret price-setting data.
Stopping short of government regulation to cap B.C. gas prices, the Horgan government instead said it would shame the oil companies into lowering prices themselves.
But the oil companies are fighting the forced disclosure of their corporate secrets. Now the dispute is snaking its way through the courts, while British Columbians are left paying sky-high gas prices.
Gas-price analyst Dan McTeague said B.C.’s strict low-carbon fuel standard — mandating cleaner-burning gas — also drives up B.C. fuel prices.
“All told, adding up all the government regulations and taxes, you’re looking at about 62 to 63 cents a litre in B.C.,” he said.
McTeague has had a fascinating career as a one-time MP who transformed into a fierce critic of Prime Minister Justin Trudeau and his Liberal government’s energy policies.
“I’m a former Liberal MP, with the emphasis on ‘former,’” he understated, revealing that the federal Conservatives unsuccessfully courted him to run in the last election.
Now, McTeague is closely watching the fortunes of the Conservatives under new party leader Erin O’Toole.
O’Toole is under pressure to steer his party toward the middle of the political spectrum by adopting more environmentally friendly energy policies.
That includes the astonishing possibility that O’Toole might endorse a federal carbon tax, after years of slamming Trudeau’s federal tax.
If O’Toole does back a national carbon tax — especially with gas prices already spiking — McTeague thinks it would be a political disaster for the Conservatives.
“Trying to mimic the federal Liberals in the next election will get him zero votes — it will cost him votes instead,” McTeague said.
“I think it would be a fatal mistake for Mr. O’Toole. If he does that (promise a federal carbon tax), his time as leader of that party would be nasty, brutish and, of course, short.”
Mike Smyth is host of ‘The Mike Smyth Show’ on Global News Radio 980 CKNW in Vancouver and a commentator for Global News. You can reach him at mike@cknw.com and follow him on Twitter at @MikeSmythNews.
© 2021 Global News, a division of Corus Entertainment Inc.
‘People are a lot more optimistic’
Calmer criticism
Laughter overcomes politics
The ongoing provincial election is unusual in more ways than one.
But faculty members from the Department of Political Science at Memorial are helping voters make sense of the situation through public engagement.
Dr. Kelly Blidook, an associate professor in the department, made a video explainer to help people understand Newfoundland and Labrador’s current political circumstances.
A question from anti-poverty advocate Dan Meades prompted Dr. Blidook to make the video, he says.
“There wasn’t anything out there that kind of captured the whole thing,” he said, adding that interviews with media can be piecemeal because they are usually reactionary and focused.
With the video, he hopes to provide a beginners’ overview of the situation.
“I tried to think of it as a regular lecture for an introductory level class, or even for a high school class,” Dr. Blidook said. “It was meant to bring together a lot of different ideas and try to figure out what the best path is.”
Watch the video below.
[embedded content]
Sharing expertise
The video is one of several ways that he is contributing to public discourse about the election, which moved to mail-in ballots only when the province went into another pandemic-related shutdown in mid-February.
Dr. Blidook is also a regular commentator for CBC. He also does interviews with other media outlets and contributes to conversations online via Twitter.
“Academics, in Canada at least, are significantly funded by the public,” Dr. Blidook said.
Writing books and articles is one way he and his colleagues provide a public good, he says, but most people won’t read them. Social media and media interviews are a way to share knowledge and spur conversation in real time.
Department-wide contributions
Dr. Blidook is one of several instructors and faculty members in the department who are sharing their political science expertise with the public.
Dr. Amanda Bittner also does regular media interviews and appearances, and shares insights and expertise on social media.
“This election is tough to navigate — both as a “regular” citizen and an expert on elections and voting,” Dr. Bittner said.
She says she values the behind-the-scenes conversations she has with colleagues as they try to make sense of both the election and what it means for the province.
Some of those Political Science colleagues are having conversations with the public, too. Dr. Russell Williams uses social media to engage on the election and also does regular media interviews.
And along with lawyer Lyle Skinner, his colleague Dr. Alex Marland helped with Dr. Blidook’s video content.
“I’m grateful to my colleagues for sharing their expertise on social media and in traditional media interviews,” Dr. Bittner said.
A positive response
Dr. Blidook says the response to his video, which he uploaded to YouTube a week ago, has been largely positive so far.
The 22-minute video has almost 600 views and sparked discussion on Twitter. In the meantime, Political Science faculty and instructors continue to do media interviews as the election continues.
Amid the ongoing discussion, Dr. Bittner says that nobody has a crystal ball for the province’s future. But she hopes the importance of planning and preparation is one takeaway from the “pandemic” election.
“We have much to learn from this. It is my hope that on a go-forward basis, we take political processes more seriously in the province.”
Terri Coles is a communications advisor with the Faculty of Humanities and Social Sciences. She can be reached at tcoles@mun.ca.
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