Zillow’s recent Housing Aspirations Report claims that last year’s Tax Cuts and Jobs Act could result in tens of billions of dollars being reinvested into the housing market despite the fact that legislation expressly limited a number of long-standing tax benefits for homeowners.
Zillow estimates homeowners and renters will put $13.2 billion in tax savings directly into the American housing market in 2018 by using some of their tax cuts to rent or buy larger homes. Americans will spend almost double that amount – an additional $24.7 billion – on home renovations.
The net effect of the Tax Cuts and Jobs Act was to reduce most Americans’ federal tax liabilities and increase their after-tax incomes in 2018, mainly by lowering marginal tax rates and increasing the standard deduction. Many will spend some of these gains, however small, on housing – despite new limits on itemized deductions historically aimed at homeowners, including the mortgage interest deduction and deductions for state and local property taxes.
According to the Tax Policy Center, the average taxpayer received a $1,610 tax cut this year as a result of the law. The Zillow Housing Aspirations Report data suggest that, on average, renters will spend about 11 cents for every dollar of these tax cuts on buying or renting a larger home, while homeowners said they will spend 15 cents on the dollar on home renovations. Lower-income households say they will spend more of their tax cut on buying or renting a larger home than higher-income households.
About 2.6% of renters and 0.5% of homeowners said they would spend essentially all of their tax cut on renting or buying a larger home, and just over 8% of renters and 1.4% of homeowners said they would spend at least half of their tax cut on renting or buying a larger home.
Across the 20 metros surveyed, renters in St. Louis, Miami and Atlanta said they would spend the largest portion of their hypothetical raise on renting or buying a larger home. Renters in Seattle, Phoenix and Chicago said they would spend the smallest portion on upgrading their housing.
