That was the consensus of a panel of experts who spoke on Jan. 24 at the Lincoln Center campus at “Tax Reform’s Impact on the Real Estate Market.” The event was hosted by the Fordham Real Estate Institute and the Real Estate Services Alliance and moderated by James Nelson, vice chairman at Cushman Wakefield.
Richard Shapiro, director of EisnerAmper, gave a brief breakdown of nearly 500 pages of new tax law passed by Congress in December. After hearing Shapiro’s summary panelist Stephen DeNardo, CEO of River Oak Investment, sounded a note of optimism.
“There are three things I don’t bet against: I don’t bet against the United States; I don’t bet against New York; and I don’t bet against Tom Brady,” said DeNardo. He said that no matter the fluctuations in the economy, the New York real estate market is the last to take a dive and the first to recover.
In addressing the new law, panelists wore no rose-tinted glasses. There was consensus that the commercial real estate market will benefit, as will most commercial businesses, from the new 21 percent tax rate down from 35 percent. But the residential market will take a hit in light of the $10,000 cap on property tax deductions.
“In the residential sector, there’s going to be a price correction. It’ll be a long, drawn out process as to what values will be,” said Jonathan Miller, CEO, Miller Samuel Inc. “The first-time buyers’ market is going to fall, and it’s going to take many CPAs and lawyers to navigate this.”
Limited Deductions = Limited Home Buying
Another area of concern is the itemized deductions that will be eliminated under the new law, said Mike Stattery, senior vice president of research at the Real Estate Board of New York. He said this would likely act as an additional “disincentive” to home buyers.
“Fortunately, we have governor (Andrew Cuomo). Not one to sit on the sidelines, he’s talked about trying to make changes to blunt the impact of [eliminating]SALT (State and Local Taxes) on New York State resident itemized deductions,” said Slattery.
Panelists expressed concern that if state and local governments overreach or overcharge to make up for lost federal revenue, retirees may move to low- or no-income tax states like Florida. Jimmy Hinton, managing director of research at HFF, said that corporations like Amazon are keeping a keen eye on state responses before they decide where to move their new headquarters.
“The states are in a greater position of power to do what they want in order to raise revenue,” said Hinton.
Hinton, who is based in Texas, said that some states and cities have benefited from the relocation of corporations, due to lower taxes. But municipalities like Dallas are going to slow down incentives because “they’re running of out of fire power,” with local taxes on the increase.
Miller agreed that the federal tax code will affect local taxes.
“Certainly there will be migration to low-tax states, but I think it’s overhyped,” he said, citing the New York region in particular. “The more prevalent competition will be between county locations, such as Fairfield (Connecticut) versus Westchester (New York).” Taxes in Fairfield are just 35 percent of what they are in Westchester, he said.
One thing panelists agreed on was that low- and moderate-income renters will take a hit.
“The new tax law takes away some of the incentive to build affordable housing,” said DeNardo.
Here too, though, state law could help buttress areas that the federal law may hurt, said Brad Klatt, co-founder, Roseland Property Company, Canoe Brook Partners.
“In almost all of the blue states, they don’t allow for large-scale development without the creation of affordable housing,” said Klatt. “But we may find less housing, period, because they’re tied at the hip. It’ll push rents up.”
New York City should weather the changes just fine, said Slattery.
“It’s not just about the tax environment here, it’s the work force, [and]the city’s assets are innumerable,” he said. “There may be a slowdown in sales prices, but when you’re at 80 miles an hour and then you go to 60 miles an hour, you feel it but you’re still going at 60.”