Washington, D.C. — A new analysis from the Center for American Progress finds that a straightforward change to the federal tax code could spur the construction of up to 1 million new multifamily rental homes over the next decade, offering a powerful new tool to tackle the nation’s housing shortage and bring down rents. Allowing immediate tax expensing for new multifamily housing, or letting developers deduct construction costs upfront, would significantly boost housing investment and expand supply nationwide.
The United States faces a 2 million housing unit supply gap (or more) that continues to push rents higher and strain household budgets. Housing is the largest expense for most American households, and renters, who have median incomes less than half those of homeowners, stand to benefit most from expanded multifamily construction.
“America’s housing shortage is fundamentally a supply problem, and federal policymakers have powerful tools to help fix it,” said Corey Husak, director of tax policy at CAP and co-author of the analysis. “Immediate expensing for multifamily housing is a simple, targeted reform that could unlock private investment at scale and deliver the new homes renters urgently need.”
“We’ve seen this approach work before,” said Thomas Brosy, senior research associate at the Urban-Brookings Tax Policy Center. “In the 1980s, a similar tax policy helped spark a boom in rental housing construction to levels we haven’t seen since. With careful design, this approach could help boost supply again.”
CAP’s analysis finds that allowing immediate tax expensing for new multifamily housing would:
- Build up to 1 million new rental homes. Full expensing for multifamily housing could induce the creation of between 706,000 and 1,062,000 new homes over the next decade, with a central estimate of roughly 900,000 units.
- Lower costs to drive new construction. The policy would reduce the cost of capital for developers by roughly 11 percent to 17 percent, helping make currently marginal projects financially viable.
- Revive a proven policy lever. A similar acceleration of depreciation in the early 1980s coincided with a surge in multifamily construction, which rose 41 percent between 1981 and the mid-1980s.
- Provide meaningful rent relief. If increased supply mirrors historical patterns, median rents could fall by about $175 per month in today’s dollars.
Read the analysis: “1 Simple Tax Policy To Create Nearly 1 Million New Multifamily Homes” by Corey Husak and Thomas Brosy
For more information or to speak with an expert, please contact Christian Unkenholz at [email protected].