The housing market has been on its way to recovering over the past several months: the number of existing and new homes on the market are on the rise, the median selling price of homes has increased, and interest rates are at a near record low. All of this can come to an end if the nation falls off the “fiscal cliff.”

Simply put, the fiscal cliff refers to the effect of a number of laws which, if unchanged, could result in tax hikes and spending cuts that will go into effect in early 2013. If not averted, it will likely cause the United States to fall into another recession. What does the fiscal cliff mean for the housing recovery?

Mainly, a number of tax reform proposals will negatively affect the housing market. These include modification of the mortgage interest deduction and elimination of important tools that stimulate private investment in distressed markets, such as the low income housing and new market tax credits.

Mortgage Interest Deduction: The current deduction, passed in 1986, allows homeowners to reduce their taxable income by the amount of interest paid on their mortgage. This deduction serves as a stimulus for many and if it is dissolved could cost homeowners up to $5,000 a year.

Low Income Housing Tax Credits: The LIHTC has created 30,679 affordable apartments for South Carolinians, generating 35,587 jobs, $2.7B in local income, and $263M in state and local revenue. The program accounts for nearly 90% of all affordable housing rental in the U.S. If dissolved, the stock of affordable rental units will decline, causing many low-income Americans to struggle with securing safe, affordable housing.

Foreclosures: An estimated 1 to 2 million Americans will become unemployed if the proposed budget cuts occur. With the increase in unemployment, many homeowners will face challenges paying their monthly mortgages, resulting in an increase in foreclosures. The current national foreclosure rate is at a 5-year low, a number that will increase if more Americans become unemployed.

Non-discretionary Budget Cuts: Across-the-board cuts to the federal budget through sequestration scheduled for January 2013 would have a devastating impact on housing programs for low income households. According to the Office of Management and Budget, sequestration cuts to housing programs include:

  • Public housing operating fund cut by $325 million
  • Project-based rental assistance cut by $772 million
  • Public housing capital fund cut by $154 million
  • HOME Investment Partnership program cut by $82 million
  • Housing counseling assistance cut by $4 million

 

The Department of Housing and Urban Development estimates that these cuts will result in 185,000 households losing their tenant-based rental assistance vouchers, 4,500 families would not receive rental or homeownership assistance through the HOME program, and that CDBG cuts would impact more than 1,000,000 Americans.

We urge Congress and the White House to reach an agreement in order to avoid the fiscal cliff and sound tax reform. The future of affordable housing is depending on it.