Statement of Tax Reform—November 2017
Homeownership is critical to the economy, representing an estimated 15 percent of Gross Domestic Product. Homeownership is also critical to household financial stability. According to the Federal Reserve’s Survey of Consumer Finances, a typical homeowner’s net worth is $195,000 while that of a renter is $5,400.
Congress is debating revisions to mortgage and homeownership provisions of the Internal Revenue Code that will have a profound impact on our national economy. This is of critical importance to the economic security of the 69 million men, women and children in households owning a home in a homeowner association, condominium association, or housing cooperative—collectively known as community associations. Approximately 33 percent of American homeowners live in 342,000 community associations across the nation.
Two areas of tax reform are significant to the community association housing model—the mortgage interest deduction and deduction of local property taxes.
- Mortgage Interest Deduction: CAI strongly supports the existing mortgage interest deduction, a national policy that makes homeownership a reality for millions of households. The mortgage interest deduction protects homeowner equity and supports new household formation by ensuring tomorrow’s families can follow the same path to homeownership as those before them. Recognizing the societal and household-level benefits of homeownership, prior Congresses have wisely supported the mortgage interest deduction.
- Local Property Tax Deduction: Community association homeowners pay the same local taxes as homeowners in neighboring, non-community associations. In addition to these costs, community association homeowners pay assessments to fund services that were once the exclusive province of local government, including: trash collection, road and sidewalk maintenance and repair, street lighting, disposal of sewage, storm, flood and erosion control systems, shade and ornamental tree maintenance, and security patrols for crime, disorder and public safety. Community association homeowners are essentially taxed twice. This double-taxation is an inequity in the current tax structure.
A diminution of a taxpayer’s ability to deduct local property taxes from their federal tax liability is a strong disincentive to homeownership and is a federal tax increase for these households. Eliminating or limiting the deduction for local property taxes will have a profoundly negative impact on housing affordability in the community association housing model, which is already burdened by dual taxation.
Tax reform legislation currently advancing in the U.S. Congress modifies existing mortgage and homeownership provisions of the tax code to eliminate or restrict access to homeownership incentives. This is simply not good for the economy or the community association housing model.
CAI calls on lawmakers to craft tax reform proposals that provide tax relief for American households, ensure the competitiveness of American enterprise, and maximize the macroeconomic and household benefits of homeownership. Current tax proposals under consideration by the Congress fail to rise to this level.
The Community Association Housing Model
Services to Homeowners. Community associations—condominiums, cooperatives, and homeowner associations—maintain infrastructure through payment of assessments, which is mandated by private contract (deed) between the homeowner and the association. Further, community associations maintain buildings containing dwelling units and deliver essential services to homeowners, such as utilities and insurance, as well as management, landscaping, recreational amenities, and financial reserves. Due to the cost savings, many associations offer affordable entry-level housing for first-time homebuyers. Due to their maintenance-free benefits, associations also attract down-sizing older Americans on fixed incomes—28 percent of association residents are age 55 or older.
Financial Model. The financial model of a community association is based on collection of assessments from homeowners to fund municipal services, as mentioned above, and special amenities. The transfer of services has become commonplace as the demand for housing has outpaced the ability of many local governments to provide services. Not only has the transfer of services relieved local municipal budgets, it has proven economically efficient for homeowners. Community associations do not generate revenue for a profit.
Economic Contributions. In 2016, community association homeowners paid an estimated $88 billion in assessments, contributing directly to local economies and to Gross Domestic Product. Community association homeowners also set aside $25 billion in financial reserves in 2016 to fund major capital improvements of association infrastructure. The Foundation for Community Association Research estimates that the 26.3 million housing units in community associations have an estimated value of $5.5 trillion in property value.
