YOU ARE HERE: LAT HomeCollections

Dick Turpin

Tax Reform Doubts Mute Builders' Cheer

June 30, 1985|DICK TURPIN

It was mostly money-talk during the four-day, 27th annual Pacific Coast Builders Conference in San Francisco under a lingering cloud of uncertainty concerning proposals for national tax reform.

There were the usual educational sessions covering every aspect of the home- and light-construction industries but the pervading issue was financing.

How would pending legislation treat future home-buying habits? Would it cut off all tax incentives for realty investments? Would it inevitably raise rents and lead to more rent control?

Those were a few of the principal questions, but there were no answers, just some good guesses and lots of opinions as participants discussed tax reform and its coming impact on the housing and real estate fields.

Industry leaders seemed agreed that there is a 50-50 chance that some tax reform will be enacted this year unless all or most of President Reagan's energies are turned to the TWA plane hijacking and the holding of American hostages. A worsening of that crisis could obviously affect all other matters.

The overwhelming complexities of tax reform marred an otherwise upbeat and cheerful meeting attended by about 4,400--a new high in the history of the nation's largest regional builders conference.

Construction in 1984 and to date this year, bolstered by lower interest rates and a strong pace of housing starts, provided a general feeling of "enjoy-it-while-we-can" among the builders and their allies in the business. Nationally, housing, a bellwether for the economy, is a current bright spot.

But Stanley Swartz of San Diego, president of the California Building Industry Assn., which sponsors the annual event, conceded that the industry is "frustrated" continually in its efforts to provide affordable housing, particularly in California where the price of a single-family home can be as much as $50,000 higher than the typical house elsewhere in the nation.

Revenue-bond financing of homes--at lower rates for buyers--is a primary hope for affordable housing, he said, and must be continued at all levels, but changes in tax structures can lessen incentives for multifamily housing construction and become "one of the sacrificial lambs of tax reform." If the economics of the marketplace cannot provide for such housing, then there will be a "genuine revolt" by "unhoused people" and the government will have to react, he said.

Assemblyman Gray Davis (D-Los Angeles), addressing the same issue, noted that while the price tag of a California home is from 48% to 50% higher than the comparable national figure, the average income in California is only 8% higher than the U. S. figure.

Assembly Bill 2052, introduced by Davis in March to extend for two more years the bonding authority of local government entities for apartment house construction, has just been amended by Davis to double the money amount to $3 billion.

"Earlier this month, local governments reached the $1.5 billion limit for bond sales to finance new apartment construction, Davis said. "We cannot afford to slam (that) door shut . . . in California at this pivotal time in the building cycle. The vacancy rate in most California cities is well below 5%--a definite indication of a housing shortage. Nationwide, over 60% of apartment construction is stimulated by this type of bond financing. We need to keep pace with California's growing needs and low interest bonds are the answer."

He added that bond-financed apartments must comply with federal and state laws requiring that at least 20% of the units be available to low-income renters over a 10-year period. That is essential to meet the state's responsibilities to provide "affordable housing for people from all income levels," he said.

Kenneth Leventhal, a prominent Los Angeles-based housing industry consultant, described the current tax reform issue as the "fifth round of tax tinkering" with the 1954 tax code. Unless the President pushes real hard, "we won't get tax reform" this year, he said.

His view of the savings and loan institutions, and some banks, was very harsh. "They are being held together by creative accounting, " the certified public accountant declared, alluding to the rash of failures of lending institutions and various resultant rescue attempts. The federal budget deficit and the national debt don't brighten the picture either, he added. His priorities would place the budget deficit ahead of tax reform.

Because apartment house construction is usually "tax motivated," changes in the new structure will have an adverse effect for the industry, he said, while anticipating increasing activity in real estate investment trusts.

Michael Salkin, Bank of America economist, bullish about the entire housing market--because real estate financing is readily available and is enhanced by mortgage sales in the secondary market and by securitization of loans--expects nevertheless a "painful transfer" for savings institutions in the wake of deregulation.

Los Angeles Times Articles