The conservative Wall Street Journal editorial board has a new gripe with the House GOP's economic agenda: a change to how housing development is treated, that they believe will just make the tax code more complicated and housing more legally fraught.
"Developers can claim one of two credits. One offsets 30% of the building costs for low-income units if they are at least 50% financed with tax-exempt 'private activity' bonds issued by municipalities. A $100 million project would be eligible for a $30 million credit over 10 years," wrote the board. "To receive the credit, developers must agree to rent a certain share of units to households under specified income limits and at 'affordable rates' for 30 years. But the rules are convoluted, which is why studies have found that projects utilizing the credit take longer to build and cost about 20% more than market-rate housing."
The second way to claim credits, the board noted, is an offset for 70 percent of a project's housing costs, but is only a limited, fixed pot of money allocated to states based on population. The key point, however, is that this program hasn't really worked in the 40 years it has existed, barely doing anything to stimulate new housing production.
"Like other subsidies, the credit fuels higher costs. Developers have an incentive to spend more on construction to pocket bigger tax credits. Since taxpayers foot most of a project’s cost, there’s little incentive to build efficiently," wrote the board. "Developers must also hire armies of lawyers and consultants for compliance. As the Cato Institute’s Chris Edwards told Congress recently, the IRS auditing guide for the credit is 344 pages. The IRS guide for building compliance is another 214 pages. State compliance manuals can run 145 pages, and a standard industry guidebook for the credit is 1,942 pages."
However, it's all a big money-maker for housing developers even if it doesn't result in more housing getting built, which is why industry lobbyists have pushed for an expansion — which the GOP, alongside some liberal lawmakers, appears inclined to give them in the form of a pair of bipartisan bills that make the credit even more generous.
Similar provisions have also found their way into Trump's "big, beautiful bill" on tax breaks for the wealthy.
"This is another boondoggle that shrinks the tax base. The credit in its existing form will cost $15.2 billion this year, which is on top of some $70 billion the feds will spend on housing assistance," wrote the board. And it likely will not accomplish much for new development, because "states and localities are primarily responsible for housing" and their local rules are the biggest factor.
"If Republicans really want to lower housing costs, they’d ask President Trump to drop his tariffs, which are raising prices on everything from lumber to appliances," the board concluded. "It makes no sense to raise taxes on home building and then subsidize it via the tax code."