House Passes Flawed Inflation Reduction Act

Housing Affordability
Contacts: J.P. Delmore
(202) 266-8412

Heather Voorman
(202) 266-8425

The House today approved the Inflation Reduction Act of 2022, legislation that NAHB opposes because it fails to ease inflationary pressures on housing and contains troublesome new building and energy code requirements that could raise the cost of housing for home owners and renters. With Senate passage of the bill on Aug. 7, President Biden will sign the measure into law shortly.

In the days before the Senate approved the Inflation Reduction Act, NAHB Chairman Jerry Konter issued a strong rebuke of the bill because it contained several changes to the taxation of real estate and new code requirements that would exacerbate the nation’s housing affordability challenges. Konter urged Senate Democrats to rework the bill by eliminating these onerous provisions, and NAHB also sent a letter to Senate leaders that went into more detail expressing our opposition to the bill.

Working with Sen. Kyrsten Sinema (D-Ariz.), NAHB was able to obtain key changes to the bill as it relates to carried interest and how companies can deduct depreciated assets from taxes.

And although the bill does include positive provisions for housing, NAHB believes that overall the bad outweighs the good, despite the 11th hour changes to the legislation that NAHB helped to push through.

When the bill went to the House for consideration, NAHB still fought aggressively to improve the legislation and sent a letter to House Democratic and Republican leaders detailing our concerns and expressing our opposition.

“The legislation does nothing to address the housing supply crisis facing American families,” the letter to lawmakers stated. “Rather the bill will disincentivize multifamily construction, increase the cost of new homes through higher energy code requirements, and inflate labor costs.”

House Democrats refused to change the bill because it would mean sending it back to the Senate, where chances of passage would be jeopardized because of the 50-50 Democratic-Republican split in the upper chamber.

However, as the House was debating the bill, Financial Services Committee Chairwoman Maxine Waters (D-Calif.) took to the House floor and cited a key NAHB concern: “We can no longer afford to have housing as an afterthought, a ‘nice to have,’ or simply something that can wait until later,” Waters said. “It is foundational to the prosperity of families, key to a healthy economy, and crucial to fighting inflation. Yes, I’m disappointed. I’m going to vote for this bill because so many people are going to benefit in different ways, but I’m disappointed that housing does not show up in any way in this bill.”

New Codes Requirements

On the codes front, the legislation contains $1 billion in grants to pressure state and local governments to adopt more stringent energy code regulations. The practical effect will be to raise housing costs even further while doing very little to provide meaningful savings for residential homes and apartments.

Two-thirds of the funds, or $670 million, will be made available for the adoption of energy regulations for residential and commercial buildings that meet the zero energy provisions in the 2021 edition of the International Energy Conservation Code (IECC). These zero-energy targets are not appropriate for most jurisdictions and not cost-effective for consumers.

NAHB continues to push for a better strategy — where the Department of Energy takes the lead to help states advance the codes in a manner that best fits the needs of state and local governments.

A Victory on Carried Interest

In the tax arena, NAHB strongly supported the efforts of Sen. Sinema to kill an onerous provision on carried interest that would have affected existing real estate partnership agreements and the treatment of Section 1231 gains at a time when housing has entered an industry recession.

However, the bill includes structural changes to the Section 45L new energy efficient home tax credit, which provides builders a $2,000 tax credit on homes by meeting specific energy savings on homes built above the baseline IECC, that would effectively render the tax credit null and void for most builders.

Changing the rules to make ENERGY STAR the sole means to qualify for the 45L tax credit is counterproductive because it is a niche market that will never be widely adopted — less than 10% of single-family and multifamily units were certified in 2020.

On the positive side, the legislation includes long-term extensions for many other existing energy tax incentives, and $4.3 billion for the HOMES Rebate Program, an energy-efficient retrofit program.

Further, NAHB fought successfully to defeat a measure that would have extended the 3.8% Net Investment Income Tax (NIIT) to active investors, including NAHB members. The NIIT applies to capital gains and rental income, among other investment streams, and would have directly increased the cost of housing.

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