The Guru Is In
The “healthy home living” tax credit
By David A. Smith
6 min read
Leo Bloom: It’s simply a matter of creative accounting. Let us assume, just for the moment, that you are a dishonest man.
Max Bialystock: Assume away!
– Mel Brooks, The Producers(1)
Let us assume, just for the moment, that:
- You are a visionary policy maker who knows everything about the principles of investment tax credits to incentivize desirable market behavior, but nothing of the political obstacles to creating such investment tax credits, and
- You have observed the explosive growth in healthcare costs due to America’s gray tsunami and the Affordable Care Act’s failure to improve customer satisfaction, change consumption incentives, or reduce costly palliative procedures, as well as its plummeting voter support.
You deduce, as such a person, that millions of American voters are aging baby boomers fearful of their economic and personal futures. They are on fixed or declining income curves; their physical mobility will decline; they will become fragile and susceptible to aches, pains, strains, and bone breaks. Meanwhile, their home’s functionality is declining: it has stairs and stoops to traverse; heating and cooling systems to repair; gutters that may clog and windows that may leak; rubbish to take out and yards to mow; no longer benefits, these have become burdens. These empty nesters are over-housed (more space than they need or use) and under-serviced; over-equity and under-liquid (long in property, short in cash).
A comparison of what elderly homeowners need versus what they have shows they should be reinventing their living situation.
Elderly homeowners need:
- Mobility support
- ADL support
- Maintenance help
- Antidote to loneliness
Elderly homeowners have:
- A home they own
- Built-up equity in the home
- Extra space in the home
Faced with this disjuncture, many elderly homeowners conclude they cannot retrofit the home (2) so they must sell it and move to … what? An in-town high-rise apartment? Congregate living or assisted living, with high up-front fees and breathtaking monthly costs? An extra room in their children’s home (possibly in a new city far away)? All of these are financially irreversible, physically disruptive, socially unknown, and fraught with hard-to-assess counterparty risk (3).
Now, just for a moment, let’s reverse the question: what type of people have what the elderly homeowners need and need what elderly homeowners have?
Young singles have plenty of personal, economic, and social mobility; they have minimal cash assets (and possibly maximal student-loan liabilities); they want to live somewhere close to work and pay as little cash for it as they can. Their needs beautifully complement what the elderly homeowners have, and what they have is what the elderly need.
So you, the visionary policy maker, imagine a bargain where an elderly homeowner rents room(s) (including kitchen bathroom access) to a Millennial single in exchange for live-in services (4). To reduce the risk of intra-home exploitation, the elderly homeowner might add Web-based minicams or other smart systems that assure he or she is connected and can swiftly summon help should it be necessary.
If this were a viable tenure option, millions of elderly Americans who might otherwise have to drain the equity in their home or throw themselves upon the impersonal mercies of the Medicare/ Medicaid elderly health care system (with consequence cost to the rest of us taxpayers), suddenly can remain independent and off the government’s checkbook, saving the government billions of dollars annually.
In an America where ‘sharing economy’ has become the urban business model du jour, with disruptive innovations Zipcar, Airbnb, and Uber/ Lyft, the ‘ad hoc residential family’ is both logical and potentially feasible. Technology and social media can provide the user-visibility and optionality that can allow for good policy outcomes with a low level of regulatory overlay.
But if a private operator opened up AirLiveIn, upon it would descend, with a thud from heaven evocative of several thousand Federal Register pages dropped from a great height, with aftershocks that would traumatize anyone unfamiliar with Washington. Local zoning ordinances against unrelated adult parties cohabiting. Mandatory ingress and egress retrofits. Americans with Disabilities Act compliance. Homeowners’ insurance risk premium adjustments. Tort litigation claims. Assaults from the medical high priesthood and guilds claiming that no one uncertified as a home health aide can possibly be allowed to do unlicensed maintenance or kindnesses. Trailing them all, the implacable IRS deciding that somehow somebody is making money out of this arrangement that is not being properly taxed.
The potential assault of the regulatory infantry is why the sharing economy has let to alight on the most obvious sharing of all: the multi-household home, and why these arrangements arise now clandestinely, off the books.
But you, the visionary policy maker, realize that under the status quo, we will watch the ACA machinery consume more costs, customers, political capital, and politicians while making more and more Americans dissatisfied with their government. You realize the country needs a breakthrough proposal, a fusion of demographic imperatives with social-media possibilities, that appeals politically to both the elderly and the Millennials – a pilot program with a ‘healthy home living’ Federal tax credit that can be deducted against income taxes (for the elderly) or credited against student loans (for the Millennials).
Now let us assume, just for the moment, that you are a centrist cost-cutting Midwest Republican who needs a signature initiative on which to base a presidential campaign.
It’s simply a matter of creative envisioning.
David A. Smith is Chairman of Recap Real Estate Advisors, a Boston-based real estate services firm that optimizes the value of clients’ financial assets in multifamily residential properties, particularly affordable housing. He also writes Recap’s free monthly essay State of the Market, available by emailing dsmith@recapadvisors.com.
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(1) http://definitivedose.com/entertainment/movies/movie-quotes/368-ten-classic-quotes-from-the-producers-1968
(2) In Guru 36, Bring the health care into housing (January, 2013), I explored how purpose-built multifamily elderly housing could be effectively retrofitted into an enriched-service-compatible living accommodation, but what works in a multifamily structure or compound fails in the individual homestead.
(3) Family counterparty risk is the worst, as anyone knows who’s hosted their in-laws for any extended time.
(4) This concept originates with my friend of many decades, Shekar Narasimhan of Beekman Advisors (http://www.beekmanadvisors.com/partners.html), who’s done quality thinking on the topic.
