Urban Institute Weighs in on the Rent vs. Own Under New Tax Bill

Urban Institute Weighs in on the Rent vs. Own Under New Tax Bill While recently passed Tax Cuts and Jobs Act will benefit the take-home pay of most Americans, and allow them to save up to buy a home if they wish, other factors will offset that benefit. This will make renting look more attractive than homeownership to many. Two analysts, Laurie Goodman and Edward Golding, writing for the Urban Institute (UI) looked at the potential impact of the new law and constructed a matrix showing how changes will affect families in various income groups. Their calculations take into account that the increased standard deduction will mean fewer taxpayers will itemize and the lower rate will mean smaller benefits for those who do. UI profiled four families, each with three members, and earning $50,000, $75,000, $150,000, and $300,000 a year. Each buys a home valued at four times their annual income, putting down 20 percent and obtaining a mortgage at 4.0 percent. UI made the following additional assumptions. Property taxes are 1.5 percent, repairs and maintenance 1.5 percent, and homeowners' insurance 0.375 percent of home value Expected appreciation is 3 percent of home value Families who rent must have rental insurance UI then looked at the total tax bill under the old and new laws with similar assumptions about state taxes and charitable giving, and factoring in the differences in tax advantages for owner occupants under each tax code. They also computed the rent that results in the same all-in cost of housing. In effect, they compute the user cost of owner-occupied single-family housing.