Presidentis a rare policy expected to draw political support from both sides of the aisle. But one aspect of the overhaul could doom it: a White House move that would effectively eliminate the mortgage-interest deduction, a perk cherished by millions of homeowners around the U.S.
If some version of Mr. Trump's plan is adopted, all but the wealthiest Americans will no longer be able to deduct the interest paid on a home loan. That's great news for proponents of rational markets, while potentially saving the U.S. government nearly $70 billion a year. But it would be bad news for current mortgage holders.
In many areas of the country, where a tight housing market means house-hunters increasingly have to stretch to afford even a starter home, closing the door on tax-preferred borrowing would make the math of large mortgages that much less favorable.
In particular, would-be buyers in recovering housing markets, many of them in cities, would find themselves hard-hit, according to an analysis from Trulia, the real-estate listing service. The biggest blow would land on cities with high housing costs, scarce housing supply or both. According Trulia, metro areas across the country, ranging from Dallas and Denver to Seattle and Boston, could see the loss of the mortgage-interest deduction scare away prospective buyers. That, in turn, would make housing prices slide, according to other analyses.
Which homeowners would take the greatest hit from losing the tax break? Not surprisingly, those with larger mortgages, especially homes sold for between $358,000 and $676,000, Trulia found.
The numbers hint at a common complaint about the mortgage-interest deduction. Despite the frequent refrain that it helps promote homeownership, there's little evidence that's so. Instead, data show the deduction benefits largely higher-income homebuyers, who were likely to buy a house even without a tax incentive, and whom the deduction encourages to get a larger and more expensive house than they might have otherwise.
As the Low Income Housing Coalition, which favors modifying the deduction, stated: "The [deduction] primarily benefits higher income homeowners, most of whom would be stably housed without the government's help and who do not need a tax incentive to buy a home."
Other items on the White House tax wish list could also affect the price and affordability of homes. If taxpayers lose the ability to deduct other taxes from their income for federal purposes -- including property, state and local taxes -- it would hit the same higher-tax, densely populated areas that also tend to have the most expensive housing stock. The effect, most economists agree, would be an immediate drop in home prices.
"For people in high-tax states who have moderate incomes, there would be substantial reduction in the incentive to spend more on housing," said Eric Toder, co-director of the Tax Policy Center, a nonpartisan research outfit.
"In those places, that would probably drive housing prices down -- it could be 10 or 15 percent in the short run," he said.
A separate analysis commissioned by the National Association of Realtors puts the immediate effect of a Trump-like tax cut at a 10 percent drop in home values.
While that would harm home sellers, a drop in housing costs would be welcome news for buyers, especially when combined with other elements of the White House tax plan: lowering overall tax rates and increasing the standard deduction. Those changes would likely result in more take-home income for ordinary taxpayers (not to mention the disproportionate benefits they would deliver to the highest earners).
"Income after taxes is the most important factor for housing demand," said Susan Wachter, professor of real estate at the Wharton School of Business. "If income after taxes goes up, money in the pocket translates into higher housing demand."
That's good news, because housing prices have by and large recovered from their recession plunge. Last month, according to research from Zillow, the median home price nationwide surpassed its pre-recession peak. That number, which represents the midpoint of all housing values, is now $198,000.
In Wachter's estimation, the higher demand would actually translate into higher prices, as the higher income would encourage more renters into the home purchase market, where they would compete for a smaller supply of homes.