News

Bipartisan Policy Center Hosts Panel on Evaluating Tax Expenditure Programs

On July 10, the Bipartisan Policy Center hosted a panel on the evidence-based evaluation of tax expenditure programs, such as LIHTC and Investment Tax Credits. It coincided with the release of a new report entitled “Evaluating Tax Expenditures: Introducing Oversight Into Spending Through the Tax Code”.

The event discussed the necessity of evaluating tax expenditures with a cost-benefit analysis as well as the political challenges and technical difficulties of doing so. Eugene Steuerle, one of the paper’s authors, offered suggestions to the IRS to re-organize and devote more resources to collecting data for tax expenditure policy analysis. Thomas Barthold, the Chief of Staff of the Joint Committee of Taxation (JCT) since 2009, reflected that Congress has placed some time and energy to evaluate costs and benefits of all the major affordable housing programs, including tax expenditures such as the LIHTC and other spending programs such as Section 8. He defends the current evaluations of these programs, but still perceives the utility of a more rigorous cost-benefit analysis.

Other challenges described by the panel include the complexities in quantifying social benefits of tax expenditure programs, political compromises made in Congress that occasionally yield ineffective policy, and the necessity to find policy solutions involving tax credits that will prevent additional growth of economic inequality.

A key theme from the panel is that collaboration and communication between politicians, developers, nonprofits and other businesses is essential for implementing optimal housing policy. A full recording of this engaging, politically diverse panel can be found on the Bipartisan Policy Center’s website.

Economic and Fixed Income Insights, July 11, 2018

US wholesale prices rose in the 12 months ended in June by the most since November 2011 as the costs of services accelerated, according to a report released by the Labor Department. The June index for final demand services climbed 0.4% from a month earlier and 2.8% from the same month a year ago. While the consumer price index – due Thursday – is considered a more important indicator of inflation, producer prices help provide insights into the direction of input costs that businesses are facing.  Bond yields held steady over most of the holiday shortened week.  The benchmark 10-year UST ticked up just 2 basis points to yield 2.85%, and the 30-year UST was unchanged at 2.96%.  Municipal yields declined minimally with both the 10-year and 30-year MMD down 2 basis points for the week to yield 2.43% and 2.91% respectively.

Interest Rate Observations

Source: Thomson Reuters, Bloomberg. The table above reflects market conditions as of July 10, 2018.

Important Disclosures

This material was prepared by Stifel, Nicolaus & Company, Incorporated (“Stifel”). This material is for informational purposes only and is not an offer or solicitation to purchase or sell any security or instrument or to participate in any trading strategy discussed herein. The information contained is taken from sources believed to be reliable, but is not guaranteed by Stifel as to accuracy or completeness. Past performance is not necessarily a guide to future performance. Stifel does not provide accounting; tax or legal advice and clients are advised to consult with their accounting, tax or legal advisors prior to making any investment decision.

Stifel, Nicolaus & Company, Incorporated is a broker-dealer registered with the United States Securities and Exchange Commission and is a member FINRA, NYSE & SIPC. © 2018

Harvard Joint Center for Housing Studies Releases its Report on the State of the Nation’s Housing

On June 19, the Harvard University Joint Center for Housing Studies (JCHS) held an address and panel discussion at the National Press Club in Washington D.C. to formally present its 30th annual State of the Nation’s Housing report. Since 1988, the report has offered invaluable, applicable information on the housing industry for policymakers, investors, and developers. A webcast of the event and a PDF of the report can be found here.

An address from Senior Research Associate Daniel McCue touched on the report’s main themes and significant housing industry trends. On a positive note, the overall home ownership rate increased for the first time in several years, which parallels the recent decrease in the number of rent-paying households. But, besides these statistics, the report also finds some dirt. Home ownership rates for young adults and African-Americans are at historic lows. There are also other points of concern in line with the housing industry’s challenges of the last thirty years. The report points out the lack of necessary for-sale inventory to meet the rising demand from new households headed by millennials and immigrants. A further challenge to meeting this supply is within rising costs of labor supply and materials. The Center estimated that from 2016-2017, overall input prices rose 4%, softwood lumber prices rose by 13%. In addition, the rise of mortgage payment and rent prices are outpacing wage growth at an alarming rate, leaving many renters cost-burdened. More people are even paying over 50% of their monthly income on housing. Home prices are close to pre-recession levels, but this increase is pressuring the slowly growing incomes of consumers and perpetuating a need to develop more affordable housing.

In regards to developing this need, the report contains some interesting details. The amount of starts fell 9.7% from 2016 to 354,100 units, and this decrease was especially apparent in the Midwest, with starts falling by over 20%. On a more positive note, the amount of completed units rose by 11% to 357,600, and the amount of units under construction is at a similar level to that of 2016, the highest level of units under construction since the 1970’s. A majority of these Multifamily units are being built within urban centers, but there is still a great need for more units specifically built as affordable housing. In fact, the center measures a shortage in housing of 7.2 million units for Very Low Income renters, who earn less than 50% of an area median income. These troubling signs of a lower level of starts and this demand are symbols of a nationwide crisis that requires a great amount of focus and insight to solve.

A panel consisting of Former HUD Secretary Shaun Donovan, the Federal Reserve Community Affairs Director, the President of the Lincoln Institute of Land Policy, and the Director of the JCHS built off from the address with an insightful discussion. Highlights from the panel included observations on the rise of urban gentrification crowding out affordable housing to the outskirts of metropolitan areas, the tendency of baby boomers to age-in-place yielding a greater need to provide ADA-accessible housing, the need to concentrate on absolving zoning and land issues as a solution to provide more urban housing supply, and the stark contrast between the undeveloped market for necessary shelter and the saturated housing market centered on high-value investment.

The rigor and insight of the session exemplified the utility and importance of conducting empirical research to evaluate the housing market and related public policy. If policymakers and developers apply the findings of the Report into their work, it is much more likely that findings of the report published thirty years from now will be more optimistic.

Economic and Fixed Income Insights, June 27, 2018

Despite the recent pullback in interest rates, homebuyers are dropping out of the competitive housing market. Total mortgage application volume fell 4.90%, seasonally adjusted, last week compared to the previous week, according to the Mortgage Bankers Association. More new home listings are coming on the market this summer, but potential buyers are faced with high prices and multiple offers. In other economic news, fears of an all-out trade war intensified further this week as President Trump ordered his administration to draft plans for additional tariffs on Chinese imports. Although the potential impact from a trade war is extremely damaging for everyone involved, the probability of such an event still remains low.  In the bond markets, treasuries were mostly steady as investors wait for further action between the world’s two largest economies. The benchmark 10-year UST dipped just 2 basis points lower to yield 2.88% while the long bond was unchanged at 3.03%.  Municipal bonds ticked up slightly.  The 10-year MMD sits at 2.49%, 3 basis points higher for the week, and the 30-year MMD finished just 1 basis point higher to 2.97%.

Interest Rate Observations

Source: Thomson Reuters, Bloomberg. The table above reflects market conditions as of June 26, 2018.

Important Disclosures

This material was prepared by Stifel, Nicolaus & Company, Incorporated (“Stifel”). This material is for informational purposes only and is not an offer or solicitation to purchase or sell any security or instrument or to participate in any trading strategy discussed herein. The information contained is taken from sources believed to be reliable, but is not guaranteed by Stifel as to accuracy or completeness. Past performance is not necessarily a guide to future performance. Stifel does not provide accounting; tax or legal advice and clients are advised to consult with their accounting, tax or legal advisors prior to making any investment decision.

Stifel, Nicolaus & Company, Incorporated is a broker-dealer registered with the United States Securities and Exchange Commission and is a member FINRA, NYSE & SIPC. © 2018