Before the election Donald Trump promised to fix inflation, which included big voter concern about the cost of housing. For all the shock and awe, the chaos and the daily firehose of orders, Trump has essentially acquiesced to higher inflation. And there’s not a word out of this hyper-verbal administration about housing where rents and prices are still near historic highs. New supply is anemic, and almost none of it is aimed at the lowest three-fifths of earners.
High interest rates are unlikely to decline. On-again off-again tariffs will whipsaw prices of lumber and any number of commodities and products that go into homebuilding.
The only thing congressional Republicans can rouse themselves to do is extend massively expensive provisions of the Tax Cuts and Jobs Act of 2017 (TCJA) that will require equally massive cuts from government programs to finance. The idea is to make the cuts devised by the first Trump Administration permanent. The cost is touted at $4.5 trillion in lost tax revenue—appalling enough considering what that figure would buy in terms of useful services—but the number covers only the next ten years, obscuring the draconian long-term impact on tax revenues and the deficit.
Aside from the immorality of handing more tax goodies to people and companies who already pay little tax, some of these benefits place well-heeled owners and predatory investors in competition for the few non-luxury properties available to people earning middle incomes or less who are simply seeking shelter they can afford. Guess who wins.
Today’s unique affordability crisis derives from a number of causes, but some cost pressure can be removed if so-called “tax expenditures” that affect housing are reduced. These are subsidies written into the tax code: deductions, credits, preferred tax rates, or elimination of tax by excluding profits or receipts from taxable income.
They are called tax expenditures because they lower the amount of tax that would generally flow to the treasury if the benefit did not exist. There are many of these—171 according to the Treasury department, and they are massively expensive, some $1.54 trillion in 2023 alone. Some of these benefits apply widely to businesses, but many are uniquely generous to real estate developers and speculators, which swamps the housing market with cash that would otherwise go to a variety of other investments.
Here is how these benefits are entangled in the price of housing:
Lush subsidies for affluent owners
Owners have been accustomed to a passel of tax advantages that include deducting mortgage interest and property taxes. If you take out a home-equity loan to add a posh bedroom-suite addition, the interest you pay is deductible.

There are other tax benefits for owners, but the point is that these deductions lower the cost of ownership, allowing buyers to pay more, and to realize greater benefits by putting more money into the home. The idea is to maintain a high home value so that it can sell for more, since much of the proceeds are sheltered from capital gains taxes. (Buyers who do not itemize—mainly in lower income tiers—can’t take advantage of these provisions.) That’s why so many buyers seeking stable shelter are outbid for that cute, moderately priced ranch they covet by people with the means to tart it up to rent at a much higher price. Or they will bulldoze the ranch in favor of a luxury home.
The growing role of private investors
These speculators are too often predatory but always subsidized. Real estate occupies a privileged place in tax policy. This reflects what’s thought a higher risk profile for development because real estate has its ups and downs. Owners and developers as a class are big givers to political campaigns and are willing to send swarms of lobbyists to Washington, which is why tax expenditures have grown from useful to scandalously overgenerous. While intended to encourage housing production that would be widely affordable and help ordinary earners build wealth, housing tax benefits now make housing almost entirely an investment play. ‘
The current evidence is the prevalence of private equity and other corporate investors in the market for single-family houses. Big investors historically shunned individual houses and small buildings because they were hard to price and too unwieldy for large companies to manage. The real-estate collapse that produced the Great Recession changed all that.
More than six million homes were foreclosed upon (and more than $7 trillion in home equity was lost—a considerable amount of that wiping out middle class wealth). Private equity and corporate owners swooped in, paying pennies on the dollar for many of these homes, aided by extremely low interest rates. The corporate buyers targeted the affordable stock, especially in sunbelt cities hard hit in the recession like Atlanta, the west coast of Florida, the eastern edge of the Los Angeles metro, Las Vegas, and Phoenix.
They had an impressive array of tools that lowered their taxes, which added allure to investing in homes. Some are arcane and opaque by intention, such as “pass through” income deductions, deductions on business interest paid, and “like kind” exchanges. They had the market largely to themselves as regulators put onerous requirements for creditworthiness and downpayments that shut out non-affluent buyers for shelter.
Worse, these massive corporate portfolios quickly got embroiled in controversy as their owners neglected maintenance, raised rents aggressively, and evicted freely. Yet little price has yet been paid for such abuses.
These investors have stayed in the housing market even as the larger economy recovered. New tech apps made managing these large portfolios easier as more sophisticated algorithms allowed large players to price for-sale and rental properties ever more aggressively, and even collude on rent setting (though such practices are coming under greater scrutiny).
As the long recovery from the recession finally reached almost every corner of the country around 2017, home prices started rapidly climbing because so few homes had been built during the recession. This inflation at first hit the wealthiest markets on the coasts, where construction tends to be restricted by high regulations.
Tax cuts propel housing inflation
Along came the Trump tax cuts which included enhancements to the prevailing real-estate tax advantages, creating further impetus for participation by private equity, and other corporate investors. Readers can find a rundown of the effects here, though tax-consulting experience (which I don’t have) will help you make sense of the accounting exotica.
After that, housing costs continued their dramatic growth as the Trump cuts did nothing to encourage construction of new widely affordable units nor preserving older less-expensive housing, known as “naturally occurring” affordable housing. Corporate investors, in fact, are focused specifically on the naturally occurring stock, removing hundreds of thousands of units from the affordable market by renovating and “repositioning” them at higher rents. In this way housing costs for the lowest earners have risen to punishing heights everywhere—pushing many people into homelessness.

Pundits discounted the role of predatory investors, missing the fact that their purchases kept rising, peaking at 28 percent of the market in 2022. If you take away housing produced for the affluent, it is no longer surprising that nationwide, half of tenants are struggling to make rent, according to the 2024 State of the Nation’s Housing, a comprehensive annual report. No trailer park is safe. That’s why local governments across the country are seeking to rein-in the predators.
Overgenerous tax benefits are not the only forces pushing home prices up. A comprehensive approach to housing inflation would show big results. (See my earlier Substack column here.)
Costly cuts
But the debate over the TCJA renewal offers a lever to address toxic tax expenditures. The cuts were so expensive to the treasury that they were limited to 10 years, and so must be renewed or—more deservedly—die.)
Republicans hope to push through the tax dodges as a package. Importantly, Democrats have hammered at the price to be paid by the non-wealthy for this goody bag: massive cuts to government programs that serve every American—including Medicaid (targeting poor people who do not have billionaires or a massive lobbying apparatus behind them). Letting the whole TCJA expire would bring in enough additional tax income to support Social Security for 75 years, according to William Gale and Samuel Thorpe of the Brookings Institute in a commentary.
Democrats want to change two aspects of the 2017 tax package that were beneficial, taking a bit of wind out of housing inflation. One reduced the amount of state and local taxes that could be deducted to $10,000. The other capped the deduction of mortgage interest to loan balances of $750,000 or less. (The old limit had been $1 million.) There was no altruism here; the MAGA idea was to “own the libs” in blue jurisdictions with high local taxes and high real estate values. (They forget that lots of affluent Republicans live in blue cities and suburbs because they like the amenities and don’t appreciate being singled out). Opponents of these limits predicted a home-value cataclysm which did not occur. The principle is correct, though I’ll get hate mail for it: Tax advantages need to shift toward lower incomes to help make housing more affordable and to encourage builders to serve most Americans, not just the top 10 percent.
Letting the TCJA die is not looking likely, sane as it sounds, but momentum could be built to remove the most abusive tactics if Democrats keep pointing out the degree to which these gratuitously overgenerous provisions are weapons aimed directly at affordability.
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Thank you, thank you, for shedding some light on this complex and little known issue.
“… the point is that these deductions lower the cost of ownership, allowing buyers to pay more” I have to wonder if they really do, though. I mean, if we give everyone above a certain bracket level $100K to use in buying a home, isn’t that practically guaranteed to boost prices by $100K in their market? It’s a little less starkly obvious here, just because the value of the deduction varies.
“Democrats want to change two aspects of the 2017 tax package that were beneficial …”, but I don’t see here what changes they want to make. While casting around for a clue, what I come across is proposals (not necessarily from the Democratic side) to do away with the mortgage interest deduction altogether, because it’s expensive and serves only a small minority of the owners who need it least.
Knocking out tax benefits for private equity investors, though, is an idea that sadly one hears nothing at all about. Occasionally some news breaks out about how they’re buying up a lot of housing, and what miserable landlords they are, but the economics are just too opaque.