Tax reform proposals that would eliminate much of the favored treatment for the housing industry were major causes of concern for builders meeting here this week, and they received little comfort from the Republican administration that many of them supported in the last two presidential elections.
Economists for the National Association of Home Builders estimated that a Treasury Department tax proposal would increase the cost of home ownership by 22 percent and the rent paid by most Americans by 30 percent.
Sources of money for building rental housing would dry up if the Treasury plan becomes law because it would eliminate or severely restrict tax incentives for investors, the NAHB said. The proposal also would kill tax-exempt financing programs for single-family homes.
The effect of major revisions of the tax code being proposed in Washington already are being felt, said John Koelemij, new president of the NAHB. Developers are delaying construction of multi-family housing, and investors are holding back real estate syndications for fear "they will not be able to deliver what they are proposing," Koelemij said.
President Reagan invited leaders of the construction and lending trade groups to the White House during the NAHB's four-day convention, but put discussion of tax legislation off limits. That left little to talk about but the subject that all could agree on: the need to reduce skyrocketing federal budget deficits.
Officially, the home builders believe deficit reduction should be the nation's primary economic goal. They propose a freeze on all federal spending at 1985 levels, but Koelemij said that the organization would favor "some shifting" among programs. "We did not get into details" during the meeting with Reagan, he said.
On the subject of tax legislation, Reagan would say only that the administration is "serious about tax simplification" but has not "had the time yet to sit around the table and work out our proposal," according to Koelimij, who went to the White House meeting.
Mortgage Bankers Association President Robert Spiller initially declined the White House invitation because tax reform could not be discussed.
As a result of the organization's objections, a statement read to the president by John Zellars, chairman of the U.S. League of Savings Institutions, was amended to read that "revenue increases," or tax hikes, should be proposed if spending cuts do not bring down the deficit. Other members of the group had not wanted to bring up the subject of a tax increase because "the president doesn't want to hear it," a source said.
The NAHB sees the Treasury Department's tax simplification plan and the two major Senate proposals as moves to reverse 50 years of federal commitment to the use of tax law to support the housing industry and keep "housing a top national priority," according to a policy statement by the organization.
Samuel R. Pierce Jr., Department of Housing and Urban Development secretary, tried to reassure the builders. He said in a convention speech that the administration is concerned about "the potential impact of tax reform" on the housing industry and does not "want the reform package to adversely affect the ability of rental housing to compete for capital."
In a press conference after the speech, Pierce said HUD "has had some battles" within the administration over tax policy.
"We've lost some and we won a couple of things, too," he said. In response to a question, Pierce said he agreed with NAHB estimates that most rents would go up by 30 percent under the Treasury plan.
"I don't believe the tax legislation proposed by outgoing Treasury Secretary Donald Regan will be the one that's finally proposed to Congress," Pierce said. But he would not discuss specifics of the administration's tax bill.
While most observers agree with Pierce, the possibility that some version of the Treasury proposal's key elements might find its way into law is enough to send shivers through the industry. In a survey of 1,081 of the trade association's members made during the convention, 95 percent said they believed the Treasury tax plan would decrease the sales of the homes they build.
Leaders of the NAHB passed a resolution saying that the organization is "strongly opposed" to the Treasury proposal and any other changes in the tax code that would jeopardize the industry.
The Treasury plan would establish three levels of tax rates for individuals, at 15 percent, 25 percent and 35 percent, depending on income. At the same time, it would eliminate most deductions that home owners have grown accustomed to over the years, including those for state and local taxes, property taxes and most interest on vacation homes.
Most other personal deductions would be eliminated. These changes would sharply reduce the tax savings that homeowners have counted on in the past. The other two major Senate proposals have similar provisions.
In addition, tax-exempt mortgage revenue bonds and tax incentives for builders who want to provide mortgage money for their home buyers would be eliminated under all three proposals. Tax incentives for investment in rental housing also would be cut or curtailed sharply.
Deputy Treasury Secretary R. T. McNamar defended his department's tax proposal and disagreed with NAHB predictions that the cost of home ownership would rise. Interest rates are expected to come down by 2 to 4 percentage points, putting home ownership within the reach of more Americans, he said in a speech to the association's leaders. Because of their lower tax bills, people also will have more money to spend on housing, he added.
McNamar acknowledged that rents may go up if the Treasury proposal becomes law. He said the predicted drop in construction of multifamily housing will be "short term." The problem will be "self correcting" as vacancy rates fall, construction costs go down "due to reduced demand" and interest rates fall.