Housing shortage? ‘Immediate cost’ may not be the solution

As the country grapples with a severe housing crisis, Washington is scrapping a familiar idea in hopes of spurring new construction. But the proposal may do little to reduce the deficit, some experts think, and instead simply reward investors and developers with tax breaks that the state is unwilling to pay.

The proposal is to allow real estate developers to take the tax rebate immediately, instead of amortizing it, or spreading it over several years. A similar tax law change spurred a small construction boom in the 1980s, proponents argue, and a Big Beautiful bill of 2025 also enabled some investments to qualify for the full cost.

That view was expressed in a report released March 11 from the Center for American Progress, a nonpartisan but left-leaning think tank, and the nonpartisan Urban-Brookings Tax Policy Center. On March 12, Sen. Lisa Blunt Rochester (D-Del.), a member of the Senate Banking, Housing, and Urban Affairs Committee, will introduce the Rental Housing Investment Act, based on the plan, USA TODAY has learned exclusively.

Among other things, Blunt-Rochester’s bill would allow builders to deduct up to $150,000 per unit of construction costs immediately, instead of amortizing those costs over 27.5 years. It would also provide an increased deduction of up to $250,000 per unit for projects that include limited-income units.

One of the most compelling points of the proposal may be that construction of new multifamily buildings grew 41% in the five years following a 1981 tax law change that cut the depreciation period in half. “The United States has not matched this level of growth in any year since 1986,” when a major tax bill replaced those early reforms, the report notes.

Other: Why is housing so expensive? There simply aren’t enough houses.

The United States has a housing shortage that is often estimated at 4 million units. Multifamily developments, which are almost always built for renters, can be expensive and time-consuming to build. Raising the necessary funds for such large-scale projects is often likened to patchwork, from public and private sources, across different asset classes, and with different investor needs in mind.

With all that in mind, at least one tax professional thinks the proposal, while well-meaning, is unlikely to move the needle.

“I don’t expect the rapid depreciation itself to cause a big boom in real estate development, if any measurable change,” said Brett Whittaker, a career finance expert who now teaches at the Austin School of Business in Texas.

In any project, developers must consider zoning approvals, financing terms, construction costs, interest rates, expected rents or sales rates, and cash flow timing during construction. Whittaker explained that tax depreciation is generally much lower on this list.

USA TODAY contacted several industry groups representing real estate interests and virtually all declined to comment. However, a spokesman for the National Association of Home Builders said, “NAHB will seriously consider all proposals to increase the supply of economically sustainable methods.”

Although the report’s authors attribute the depreciation tax changes to the construction boom of the early 1980s, they also acknowledge that it is likely due to several factors.

But what could be more troubling is that the current proposal would potentially cost taxpayers while benefiting wealthy investors and developers. In its broadest form, the report estimates that the tax law changes would cost $200 billion to build 706,000 to 1,062,000 new homes over the next decade.

At the same time, many sophisticated real estate investors are already building projects to improve tax returns, Whittaker explained. Tax law changes like these change the timing of deductions, so the primary beneficiaries are investors with large taxable income who can use those deductions immediately, often high-net-worth individuals or investment syndicates.

This is somewhat similar to the full upfront spending found in the Big Beautiful Bill, which the Joint Committee on Finance estimated would cost $362.7 billion over the next decade. As the Tax Policy Center wrote, “early data (showed) that very large corporations claimed the majority of such deductions under President Trump’s 2017 tax law.”

This article originally appeared in USA TODAY: The United States has a housing crisis, but the new proposal may not help