How can homeownership, and all the benefits that come with it, be expanded to more people?
This is the question that lawmakers, nonprofits and concerned citizens in Denver, Colorado Springs and across the country are asking as housing prices in many urban centers continue to rise.
According to the Case-Shiller Index, Denver housing prices have risen by 61 percent this decade. Other indices put the price appreciation closer to 75 percent. In response, the homeownership rate has fallen by nearly 10 percent over the same time frame. In Colorado Springs, housing prices rose by 9 percent over the last year - outpacing Denver. Realitor.com expects Colorado Springs to be one of the top 10 housing markets in the nation in 2018.
The new tax cuts that are taking effect will help. They will allow some residents living on fixed incomes to save the extra money they need for a down payment on a starter home.
According to a recent study, Denver is one of the cities with the biggest divide between those who want to buy a home and those who can afford one. While only 55 percent of residents can afford a home, more than 95 percent say they would like to own one.
For good reason. Purchasing a first home allows families to grasp the first rung of the wealth creation ladder of homeownership. From here they are able to build equity and savings necessary to lead a prosperous life. Even more important than its monetary benefits, homeownership provides important family stability that no one can put a price on.
So how will tax cuts help Denver and Colorado Springs residents, as well as their counterparts across the country, buy a home? By boosting income in several ways.
First, nearly all ordinary employees received bigger paychecks last month as less money was taken out of paychecks due to lower federal tax withholding. On an annualized basis, these savings should translate to more than $2,000 for a median Colorado family. And thousands more than that if the family has kids because the child tax credit has been doubled to $2,000.
But the minimum down payment on an average single-family home can cost at least $15,000. That's where some of the other tax cut benefits come in.
The new tax legislation also creates a 20 percent tax deduction for small businesses, including sole-proprietorships like Uber drivers and freelancers. That means a side-hustle for down payment money has become a lot more lucrative, with the ability to shield thousands more dollars from taxes.
Then there's the hundreds of major employers, including those with major operations in Colorado, which are giving their employees significant bonuses and pay raises as a result of their tax cut savings. Chipotle, based in Denver, is giving its employees $1,000 bonuses because of the tax cuts. Same story with other companies, including AT&T, Comcast, Walmart, The Home Depot, and Southwest, which collectively employ tens of thousands of people in the state.
Ordinary people looking to raise funds to purchase a home will also benefit from the increased economic growth associated with the tax cuts. When more money remains in hard-working Americans' pockets, it is good for everyone. Because the economy is dominated by consumer spending, the multiplier effect engages, and those dollars circulate to expand sales. Businesses respond to this increased consumer demand by expanding, hiring, and raising wages. No wonder wages and the economy are growing at their fastest pace in a decade.
Add up the income gains from 1) less tax withholding, 2) a doubled child tax credit, 3) a 20 percent write-off on freelance income, 4) widespread tax cut-induced pay increases, and 5) more robust economic and wage growth from more money remaining in the economy. Taken together - and combined with current saving efforts - these tax cuts should allow ordinary people to save enough for a down payment in only a couple of years.
While policymakers and intellectuals spin their wheels trying to make the homeownership dream a reality for more people, they shouldn't overlook the positive impact tax cuts are having.
Walter A. "Buz" Koelbel Jr. is president of Koelbel and Company in Denver.