The Biden administration has made housing affordability part of the national agenda with recent reports on supply-side constraints and the effects of exclusionary zoning. The latter is an example of what Richard Reeves has called opportunity hoarding, where wealthy homeowners use land-use regulations to drive up the price of entry into exclusive enclaves to restrict good schools, parks, and whole communities to themselves.
While the federal government is limited in its control over state and local zoning laws, there is one policy area where it can have a substantive effect: tax policy. After the passage of the 2017 tax reforms, I wrote about how the state and local tax (SALT) deduction subsidized opportunity hoarding by dampening the cost of exclusionary zoning law and how the new $10,000 cap on the SALT deduction would reduce “subsidies for affluent people in affluent exclusionary communities who have been collecting a NIMBY premium for far too long.”
Subsidizing Segregation
Some Democrats, particularly those representing wealthy suburbs, have made repealing the SALT deduction cap a priority within Democrats’ Build Back Better bill. While most criticisms of this provision have focused on its distributional effects, it is worth examining how it would result in a major setback for Biden’s housing affordability agenda as well.
Preliminary evidence gathered by economists at Zillow after the SALT deduction cap went into effect found exactly what might be expected – the cap had no effect on home values in the bottom 10 percent. Still, it slowed the growth of home values in the top 10 percent by 0.6 percentage points.
More recently, the Joint Economic Committee’s Social Capital Project examined the SALT deduction cap’s effect on moderate and high-value homes. In the years prior to the cap’s introduction, home values rose much faster among high-value homes than moderate-value homes. Since the cap took effect, we have seen the trend reverse – home values are now growing slower in the most expensive markets relative to moderately-priced markets.
If the Biden administration is serious about tackling exclusionary zoning and making housing more affordable, then allowing a vocal minority of Congressional Democrats to include any provision uncapping the SALT deduction – whether partially or temporarily – would be a major mistake. State and local policymakers need all the help they can get in the fight against NIMBYism. The cap placed on the SALT deduction in 2017 was a good start. Congressional Democrats should keep it there.
Joshua McCabe is a Niskanen Center senior fellow and the advocacy & education coordinator with Harborlight Community Partners, a nonprofit that builds and manages affordable housing across Massachusetts’s North Shore.