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USD Economist Predicts Republican Tax Overhaul Will Make It Harder For San Diegans To Buy Homes

December 6, 2017 1:43 p.m.

How Will The Republican Tax Overhaul Affect San Diego Homebuyers?


Norm Miller, real estate finance professor, University of San Diego School of Business

Related Story: USD Economist Predicts Republican Tax Overhaul Will Make It Harder For San Diegans To Buy Homes


This is a rush transcript created by a contractor for KPBS to improve accessibility for the deaf and hard-of-hearing. Please refer to the media file as the formal record of this interview. Opinions expressed by guests during interviews reflect the guest’s individual views and do not necessarily represent those of KPBS staff, members or its sponsors.

Most analysts believe that caps on mortgage interest rate deductions and the new tax form proposal could affect the California real estate industry but the question is how much. That is the unknown. University of San Diego's real estate finance professor Norm Miller gives his forecast this week and he joins us now via Skype. Welcome to the program.Thank you.Last month the index that San Diego's housing prices increased a to point to % this year. One of the biggest increases and the country. Do you see that as a healthy sign?It is an indirect positive sign. Is also a sign of large barriers to adding new supply. It's healthy and also a long-term challenge for the economy.Is that challenge that we seem to be getting further away from having anything like an affordable market in San Diego?We are. The odds of adding a supply to bring prices down are extremely low. We are in environment that objects to all dense development and we need quadruple density and some markets to have any effect on the housing supply. Then what makes it worse on affordability is the mortgage interest deduction cap would really nail San Diego as much as anybody in the country other than San Francisco. The limitation will limit people moving because they will be grandfathered and -- in. They will be able to keep those deductions as long as they stay and the existing home. When you add that -- in their existing home. It reduces supply further so there is that 600,000 home price range and inventory will be last. For many other homeowners will be mailed by the lack of state, local and limits on property tax deductions. Generally this makes our housing more expensive. The good news is for renters the larger deduction might help some people. At the low end renters might be better off but on average San Diego is now.Do you expect people hurrying to buy houses before any new tax bill goes into effect?I don't. I know some people have mentioned the possibility of trying to lock in deductions, but I don't see that as significant enough to affect the market. As we mentioned, there is not a whole lot of supplies especially and the lower half of the market. There's not a whole lot out there. Even the middle part of the California market the supply is not as high as we would like it to be. Keeping mine that the single-family home prices are about 288,000 and in San Diego there over $800,000. So we are really in a sweet spot of been affected by the house tax proposals.I know you're going to be exploring this tomorrow during your annual housing forecast, but can you share your general expectations about the housing market in San Diego in this coming year?If you look at the options, the market expects a home prices in San Diego to come down. The rate of increase comes down so we go from eight to six 24 20 and the market will be flat not increasing at all. 2019 or 2020 we probably should go negative. Meanwhile, we have a few years of possible increases in prices making the problem even more difficult than it is for affordability. After that all the California house bills that we have. They may help affordable housing but they may also increase cost of adding new housing. Senate Bill 35 is a challenge because it adds cost to existing housing. We have good intentions but the problem is not going to go away.And the long-range you are expecting to see housing prices starting to come down but is that because of increasing interest rates or will we have an increase in construction?It is due to increasing interest rates also less tax benefit from owning housing and it's not really from an increase in construction. The political forces are strong. California coastal commission and other agencies -- everybody wants affordable housing but don't do it in my neighborhood. I don't see those going away soon. Prices will come down but they will come down because of the tax policies.So for people looking to buy in San Diego in 2018, is there anything that might help them give them some information that could be helpful to them?I wish there was. I do believe that prices will come down and if somebody can wait, they could see a lower price. That will be combined with a higher interest rate. So it's really not going to be a whole lot better in the next few years even if interest rates to go up and prices come down because the cash payment required to buy a house will go up. The problem is not going to go away anytime soon unless the state can figure out how to get communities to allow a great deal more density than we've seen in the last decade.I've been speaking with Norm Miller. Thank you so much.Thank you.