The Case for a First Time Renter’s Tax Credit

Market-rate renters are a unique bunch, in that, of all the household configurations, they are the only group that isn’t subsidized in one way or another.

In the current economic climate, as we all struggle to comprehend “the new normal,” or whether we’ve even hit normal yet, or even if normal is nothing more than a setting on your washing machine, I am loathe to offer a suggestion for another tax break for anybody, personal or corporate. And yet, I’m asking myself whether it wouldn’t be reasonable to bring back a little “hand up” for some by creating a First Time Renter’s tax credit. The following is a summary of the tortured logic that brought me to that idea.

What is shelter, exactly—a right, a privilege, a benefit? A relatively safe and commodious space in which to sleep is a need universally shared by all Homo sapiens (and many other species). Unlike the other species, of course, wherein each creature is on his or her own to dig a cave, or build a nest or a dam or a lodge, we as humans, at least in the developed world, often engage in the provision of dwellings for one another. In our industry, we do this to make a profit.

Not all of us end up with comparable accommodations. Consider the full spectrum of housing paradigms: here in America, some folks inhabit spectacular manses that provide every physical comfort that could ever be hoped for, while others sleep on sidewalks, benches and lawns with no more shelter than a discarded sheet of plastic. Individuals in both these circumstances, it might be argued, are providing for themselves the best they can obtain according to their means. Based on this logic, neither is deserving of condemnation.

By current reckoning, it is estimated that the number of U.S. households that own their dwellings is something on the order of 66 percent. At the height of the housing bubble, that number swelled to nearly 70 percent, which was a substantial deviation from the historic norm. If every percentage point represents about 1.5 million households, that means upwards of 5 million families were briefly incorporated into the American Dream before having it snatched away in the mortgage and value meltdown. But even so, two out of three Americans still live in homes they themselves own.

Most in the remaining third, therefore, live in places owned by others. Renters, as is the case with homeowners, occupy a vast range of accommodations. There are luxury renters-by-choice who opt for opulent penthouses, happy to always have the mobility to walk away at any moment. Many more people live in market-rate rental housing. Some folks, of limited means, live in affordable housing, which is typically supported by some kind of public or private subsidy. In the case of publicly supported housing, it means we all collectively pitch together to buy down the cost of these accommodations. I think I’ve heard this referred to as the social contract.

Everyone reaches for what he can afford

There is another segment of the population that improvises affordability, and is probably much harder to measure. How is affordability improvised? The options include increasing the number of people with whom you share space and facilities (typically family or other roommates), or settling for a level of comfort that is more Spartan or austere than one would have preferred. Sometimes the option includes both.

What differentiates the improvised crowd from the subsidized crowd? It’s hard to say. Is it related to one’s interest in obtaining some kind of outside support to secure the primal need for housing? Why will one household seek the available benefits while another won’t?

In pondering all of this, one curious observation occurred to me. Of all the household configurations considered above, it appears the only group that isn’t subsidized in one way or another is the market-rate renter population. Huh? Well, certainly the aforementioned publicly (or otherwise) supported housing is easy to understand in concept—households with lower incomes are able to choose dwellings that for all intents and purposes are on par with market-rate rental product—except for the rent, of course. On the other hand, I’ve also heard it argued that the federal government subsidizes single-family home ownership through the itemized deduction for mortgage interest payments—a point with which it is difficult to argue.

So, then, market-rate renters are a unique bunch. There’s no question that over the last few economically devastating years, there was a great deal of “improvised affordability” engineered by these folks. Some, in order to hold on to most of the quality-of-life features in a given community they enjoyed prior to the meltdown, chose to “roommate up” to reduce their bottom line and allow them to stay put. For others, this improvisation meant moving back in with Mom and Dad, which, of course, involved a change of geography.

These days at industry events and conferences, I regularly hear that the stabilizing economic and employment conditions are raising confidence among enough people that un-coupling is starting to occur. Young, hip urban types are crawling out of their parents’ basements and attics and back into multifamily communities, where they can take a fresh run at independent living. This out-migration increases demand for market-rate apartments, which, for our business, is a very good thing.

And there’s no subsidy for them. Perhaps some can continue to rely on the largesse of their parents, but that kind of assistance typically comes with strings and a time limit. Pretty soon they just have to make the numbers work on their own.

When I first moved to California in the mid-eighties, the state offered a renter’s credit. Fresh out of school, financially stretched, and improvising my own affordable housing the best I could (think renting a room in somebody else’s house), this little monetary assistance was like a Pac Man vitamin pill, and actually helped me make ends meet.

Then it was done away with. I don’t recall exactly the year, but I certainly remember bemoaning its departure. Maybe it’s time to bring it back. A small deduction that could be figured into one’s budget could be just the thing it takes to polish up the monthly nut and expedite the “un-coupling.” Perhaps it’s a one-time thing, to stimulate the multifamily rental business. Demand in the multifamily space is going to make more pending development deals possible, which will have a ripple effect through the economy, especially for unemployed construction workers.

In the California debate, where the governor is trying to get a ballot initiative to extend the largest tax increase ever for another five years, maybe the First Time Renter’s Tax Credit could help balance the ticket.    

Daniel Gehman, AIA, LEED AP, is principal of TCA Architects in California.