Housing shortage? ‘Immediate expensing’ may not be a solution

As the country continues to grapple with a stubborn housing crisis, Washington is dusting off a familiar idea in the hopes of spurring new construction. But the proposal may do little to alleviate the shortage, some experts think, and instead simply reward investors and developers with tax breaks the country is ill-equipped to give out.

The proposal is to allow real estate developers to immediately take a tax deduction upfront, rather than depreciating it, or spreading it out over a number of years. A similar tax law change spurred a mini construction boom in the 1980s, proponents argue, and the 2025 One Big Beautiful Bill Act also enabled some investments to become eligible for full expensing.

The idea is fleshed out in a report released March 11 from the Center for American Progress, a nonpartisan but left-leaning think tank, and the nonpartisan Urban-Brookings Tax Policy Center. On March 12, Senator Lisa Blunt Rochester (D-Del.), a member of the Senate Banking, Housing, and Urban Affairs Committee, will introduce the Rental Housing Investment Act, based on that plan, USA TODAY has exclusively learned.

Among other things, Blunt Rochester’s bill would allow builders to immediately deduct up to $150,000 per unit in construction costs, rather than depreciating those costs over 27.5 years. It would also provide an enhanced deduction of up to $250,000 per unit for projects that include income-restricted units.

One of the proposal’s most compelling points may be that construction of new multifamily buildings jumped 41% in the five years after the 1981 tax law change that cut the depreciation period in half. “The United States has not matched this level of building in any single year since 1986,” which was when a giant tax bill reversed that initial reform, the report notes.

More: Why is housing so expensive? There simply aren’t enough homes.

The U.S. has a housing shortage that’s often estimated to be roughly 4 million units. Multifamily development, which is almost always built for renters, can be pricey and time-consuming to build. Assembling the funds needed for such big projects is often compared to stitching a patchwork quilt, from public and private sources, across different asset classes, and with varying investor needs in mind.

With all that in mind, at least one tax professional thinks the proposal, while well-meaning, isn’t likely to move the needle.

“I don’t expect accelerated depreciation by itself to produce a major boom in real estate development, if any measurable change at all,” said Brett Whitaker, a career tax practitioner now teaching at the University of Texas Austin’s business school.

In any project, developers have to consider variables ranging from zoning approvals, financing terms, construction costs, interest rates, expected rents or sale prices, and the timing of cash flows during construction. Tax depreciation is typically far down that list, Whitaker explained.

USA TODAY reached out to multiple industry groups representing real estate interests and virtually all declined to comment. A spokesperson for the National Association of Home Builders, however, said, “NAHB will seriously consider all proposals to increase supply in an economically sustainable manner.”

Although the authors of the report tie the construction boom of the early 1980s to the depreciation tax changes, they also acknowledge that it was probably due to a wide variety of factors.

But what may be more troubling is that the current proposal will likely cost taxpayers while benefiting wealthy investors and developers. In its broadest form, the report estimates the tax law change could cost as much as $200 billion over the next decade for the creation of 706,000 to 1,062,000 new homes.

Meanwhile, most sophisticated real estate investors already structure projects to optimize tax outcomes, Whitaker explained. Tax-law changes like this one change the timing of deductions, so the primary beneficiaries tend to be investors with large taxable income who can use those deductions immediately, often higher-income individuals or investment syndicates.

That’s somewhat akin to the full up-front expensing provision found in the One Big Beautiful Bill Act, which the Joint Committee on Taxation estimated would cost $362.7 billion over the next decade. As the Tax Policy Center wrote, “past data (showed) that very large corporations claimed the majority of similar deductions under President Trump’s 2017 tax law.”

This article originally appeared on USA TODAY: The U.S. has a housing crisis, but new proposal may not help