Housing Affected by Taxes, Inflation, and Supply Chain Issues

By at 19 January, 2022, 1:04 pm

by Raymond J. Keating –

The housing data for December 2021 presented by the U.S. Census Bureau provides more evidence for how changes in tax policy affect business decision-making.

Building permits for privately-owned housing units (seasonally adjusted annual rate) increased by 9.1 percent in December versus November. However, that increase included a 111.9 percent increase in the Northeast. What’s up with that?

Tax Policy Matters

Well, as the Census Bureau put it, “In December, there was a large increase in building permits issued in Philadelphia, PA. Philadelphia enacted several real estate tax changes for residential projects permitted after December 31, 2021.”

It turns out that starting in 2022, a longtime tax abatement allowing developers not to pay any property taxes for 10 years in Philadelphia will be phased out (by 10 percent annually), and a 1 percent developer tax goes into effect, with developers paying half the tax when the permit is granted and the other half upon final inspection.

Yes, once again, we see that taxes matter.

As for housing starts, they were up by 1.4 percent in December 2021 compared to the previous month, and up by 2.5 percent versus the same time last year. However, it also is worth noting that single unit housing starts were down in December by 2.3 percent versus November, and off by 10.9 percent compared to a year earlier.

Source: Federal Reserve Bank of St. Louis, FRED

Source: Federal Reserve Bank of St. Louis, FRED

Challenges Persist

As noted in the above charts, while having cooled some from late 2020 and early 2021, housing continues to run above pre-pandemic levels. However, challenges persist.

The National Association of Home Builders (NAHB) reported on January 18: “Growing inflation concerns and ongoing supply chain disruptions snapped a four-month rise in home builder sentiment even as consumer demand remains robust.”

The housing industry overwhelmingly is about small business, for example, with 97.4 percent of employer firms in the residential building construction sector having fewer than 20 workers, and these small businesses, as is the case across the rest of the economy, need sound public policies, such as tax and regulatory relief, that will spur entrepreneurship and private investment.

Along with sound monetary policies, such measures will work against inflation, and support investment and innovation in supply chains.

Raymond J. Keating is chief economist for the Small Business & Entrepreneurship Council.


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