In short... not a whole lot.
The recent signing of the Inflation Reduction Act will introduce significant changes to climate, energy, and health policy— but what impact, if any, will the new law have on housing and Commercial Real Estate?
In short answer, not a whole lot. Affordable housing efforts, which had some bipartisan and industry buy-in, had largely fallen out of focus in the late push by congressional Democrats to pass the reconciliation bill. Early versions of the White House’s 2023 budget sought to expand the Housing Choice Voucher Program, housing and community development investments, and other efforts to boost the housing supply. In the end, a one-page summary of the law’s details notably excludes any mention of “housing” or “commercial real estate,” and the noted policy proposals were excluded from the version signed by President Biden.
A $1 billion grant program to make affordable housing more energy efficient made it into the bill’s final version alongside tax credits to incentivize homeowners to replace older energy systems.
However, much of the potential impact on the industry concerned a proposed change in the tax treatment of real estate transactions. A proposal to close what is known as the carried interest loophole remained a key revenue source in the spending bill up until the eleventh hour of its passing in the US Senate. The provision was removed to gain the support of Senator Kyrsten Sinema (D-AZ), whose vote was needed for the party-line bill to pass. The National Association of Realtors and other industry trade groups opposed the proposed change. Provisions instituting a corporate minimum tax and strengthening tax enforcement replaced the carried interest proposal as the primary revenue generator of the final law.
While much of the CRE industry welcomed the removal of the tax changes, including a corporate minimum tax will still have an impact, albeit one that is more limited. An analysis by the Tax Foundation estimates that the real estate, rental, and leasing industry could see a net tax increase of 12.7% due to a new eye toward book income. Still, the passing of the Inflation Reduction Act effectively closes the door on this congress’ potential to make significant housing or commercial real estate policy changes.
Concerns remain high around the nation’s housing supply issue. Some efforts, including bipartisan bills introduced in both the House and Senate, remain at play in congress, but with the election season approaching, legislative momentum is likely to stall as we close the year. The focus now shifts to state and local efforts to boost housing supply, such as zoning reforms and HUD funding made available for local projects.