The Tax Cuts and Jobs Act has cost millions of homeowners a collective $1 trillion in lost property values, says Allan Sloan, a former senior editor at Fortune and now an editor at large at ProPublica.
As many homeowners in pricey suburbs continue to lament, the 2017 law capped the federal deduction of state and local taxes at $10,000 and eliminated some mortgage deductions, producing higher tax bills for millions of homeowners as a result. Those heftier bills have put downward pressure on house prices across the country as buyers adjust their affordability calculations, Sloan says, reducing the growth in property values overall.
Sloan’s conclusion is based on a macroeconomic analysis of U.S. housing prices by Mark Zandi, chief economist of Moody’s Analytics, who found that overall house prices in the U.S. are 4% lower than they would have been otherwise absent the tax law, due to the loss of deductions and the rise in mortgage costs driven by the larger federal deficit. Given a total value of U.S homes of roughly $26 trillion as of March 31, the loss comes to $1.04 trillion.
Hurting in New Jersey: Using an economic model developed by Hugh Lamle, former president of the asset management firm M.D. Sass, Sloan explores how higher tax bills affect homebuyers as they calculate how much property they can afford to purchase. Concentrating on the areas that have been hit hard by the tax law changes – high-cost, high-income areas on the coasts – Sloan shows how the tax law has produced six-figure losses in property values for some taxpayers.
According to Sloan’s calculations, the hardest hit areas were in the New York area, with New Jersey’s Essex County (where Sloan lives, it should be noted) seeing an estimated 11.3% loss on property values due to the tax law.
The four next worst-off areas were Westchester County, New York (11.1% loss); Union County, New Jersey (11.0%); New York County (better known as Manhattan), New York (10.4%); and Lake County, Illinois (9.9%).
But corporations are doing fine: The numbers are even more painful for some homeowners if you consider the trade-off between higher individual taxes and lower corporate taxes produced by the tax law, Sloan says:
“According to the Tax Policy Center, the Treasury will get $620 billion of additional revenue over a 10-year period because people can’t deduct their full state and local taxes. That, in turn, covers most of the 10-year, $680 billion cost of the income tax break that corporations are getting. So you can make a case that my friends and neighbors and co-workers in New York and New Jersey—and many of you all over the country—are paying more federal income tax in order to help corporations pay less federal income tax.”
For the full analysis, which includes notes on methods, see Sloan’s article at ProPublica.