What Does the New Tax Plan Mean for Boston Rentals?
Will it soon be smarter to rent in Boston than it is to buy? The reality is that even people capable of purchasing high-end properties in Boston may soon opt to sign rental leases instead of mortgage papers. The tax bill that was signed into law just before the holiday has people across the country asking questions. Residents of Boston have their own set of questions when it comes to what new tax laws will mean for both renters and buyers in Bean Town. Who will come out on top? The answer may surprise a lot of people.
There is one group that may really come out on top once the effects of the new laws begin to be seen. That group is Boston landlords. This will happen because of a new provision that will cause the deduction for state and local taxes to be capped. In addition, the deduction for mortgage interest will also be capped or eliminated. This is something that is bound to have a particularly large impact in an area like Boston and other spots where the cost of owning a home is already high. The lack of deductions related to owning property will now take away one more incentive when it comes to buying versus renting. This means that rental properties could be in high demand if the real estate market in the city cools off as a result of the tax changes. Many people are now wondering if 2018 will become the year when renting in Boston makes more sense than buying in Boston for a lot more people.
Beyond Changes in Deductions
There are many wild cards floating around when it comes to the future of real estate markets in high-cost cities around the country. Boston is one of the cities where it will all play out for the rest of the country to see. While the reduction or elimination of property-based deductions will heavily impact the future of Boston’s real estate market, there are other factors at play that will also heavily influence the future. The new tax changes bring with them a general sense of uncertainty that could be enough to cause people to hold off on making the leap to property ownership in cities like Boston. Many people who were technically ready to dive in and purchase a home somewhere in the Boston area in 2018 may now decide to delay that decision until the smoke clears and everyone can make sense of exactly what the new tax laws mean for the public.
Where Will Non-Buyers Go?
The fact that many people may delay purchasing homes in the Boston area until more is known about what the new tax laws mean for the public creates an interesting scenario for Boston. Where will all of the people who would have otherwise purchased homes in Boston go now? The answer is that they will become renters instead of buyers. This is certain to put what is already a very hot rental industry into a new stratosphere. Demand has already never been higher in Boston. The arrival of big businesses like General Electric and an overall boom in the city’s tech sector were already causing concerns about housing shortages. The increase in demand that is estimated for 2018 will only put more pressure on residents to find affordable places to live. Rental rates in the Boston area are already skyrocketing on nearly a monthly basis. This is creating a tense situation both for people who are relocating to the city and existing tenants who already call Bean Town home.
A Boon for Landlords
While many people are wringing their hands in worry over what tax changes could mean for Boston’s housing market, there’s one group that has every reason to be optimistic. Landlords throughout Boston have the most to gain from the situation. There’s no denying that Boston landlords are already enjoying a bright period. The business boom that is happening in the city as a result of the growth of tech companies throughout Boston is already causing rental rates to reach record levels. This is causing renters to fight fiercely for available rentals. Of course, it isn’t as though Boston’s rental market was ever hurting. The large number of institutions and colleges in the city ensured that there was always a steady stream of renters looking for apartments. However, landlords often had to deal with student renters and other short-term renters. This could create hassles and monetary losses for some landlords as they tried to accommodate the needs of a population that was always in flux. However, that may not be the case for long if more long-term residents choose to seek out rentals instead of committing to purchasing their own homes. What landlords can potentially look forward to are more consistent, high-earning renters.
Who Will Be Hurt the Most When Rental Rates Skyrocket in Boston?
While nearly all residents of Boston have something to lose if the city’s real estate market fizzles, some have more on the line than others. It is widely known that Boston is a city that attracts some of the most brilliant minds in the world. People from around the globe come to Boston to study at iconic institutions like Harvard and the Berklee College of Music. In addition, there are many more universities and colleges peppered throughout Boston’s landscape of cobblestone streets and sprawling wharf areas. While many learning institutions in the city do offer student housing, it is impossible to accommodate every student on campus. This is why off-campus housing is such a common thing in Boston. It is especially common for people who are in the city for post-graduate programs or short-term teaching posts. People who come to the city for academic purposes are often looking for low-cost and flexible housing options. Such options were hard enough to come by under the normal circumstances of Boston’s housing market. Those renters will now have an even harder time competing against renters with large salaries and the ability to pay premium rates. This can be a real problem if Boston wants to avoid the brain drain that can occur when younger workers and new graduates are unable to afford to live in a city.
Why the Rental Boom May Be a Short-Term Phenomenon
There is a potential silver lining to the turbulence that is likely to be caused in Boston’s real estate market now that the new tax bill is shaking things up. That silver lining is that the rise in rental rates could be temporary. There is a chance that things will even out once nature is allowed to take its course and rates are permitted to rise according to demand. This will inevitably drive down the real estate prices in Boston. A dip in real estate prices is typically seen as a negative thing. However, a dip in the Boston area could give would-be buyers a potential break from what many people consider to be unattainable prices. The Boston real estate market has actually become one of the most expensive markets in all of North America within the past two decades.
Many people are excited by the idea that a higher demand for rentals could help to drive down the unrealistic real estate prices in the Boston area. This would then cause more people to consider purchasing homes. A drop in prices could effectively undo the negative impact of the reduction or elimination of deductions for property tax and mortgage payments.
What Millennials Should Know About the Future of Boston's Rental Market
Millennials need to be prepared for the fact that rental rates in Boston are not about to go down at any point in the foreseeable future. This means that some young renters may need to get creative when it comes to finding places to call home in the city. They can expect to rely on the use of roommates to be able to afford rents in in-demand neighborhoods near where they work or study. In addition, some may need to get used to the fact that a long commute is simply in the cards. Moving to neighborhoods located slightly farther away from the epicenter of the city may be the only solution for some young renters looking to enjoy the benefits of the Boston area without forking over top dollar.
There are some positive developments happening in Boston's rental market that are designed to cater to the unique needs of millennials. Co-living apartments are being introduced around the city as a way for young renters to enjoy upscale living on a budget. These properties offer what are effectively the same things as efficiency apartments from past eras. However, the buildings they are housed in come with many stylish and luxurious amenities. Residents can enjoy lounge areas, pools, terraces and gyms that are shared among all of the residents of a complex. In addition to providing an affordable way to live the good life, this arrangement also provides residents with a built-in community right where they live. Of course, that doesn't mean that everything will be coming up roses for millennial renters in Boston. There are definitely bound to be some tough situations for renters who simply can't find affordable options.
What Seasoned Boston Residents Should Know About the Future of Boston's Rental Market
Boston isn't just a city for the young. Professionals in all fields come to Boston to work at elite institutions and reach the upper heights of their careers. Many of those people are looking for true homes in the city. This typically meant paying top dollar for the classic brownstones or lofts that Boston is so famous for in the past. These properties were often seen as solid investments that provided both economic benefits and a sense of personal pride. However, Boston residents in the past received some relief from high real estate costs and expensive property taxes through the form of tax deductions. Those deductions will now be capped. This leaves many questions regarding whether people can and should still invest heavily in real estate. The answer won't be the same for all people. The one thing that we do know about the new tax law is that it will impact different people very differently. It will be up to each potential buyer to determine if the new benefits offered by the tax law will make up for the lack of property-related deductions they are able to make.
What Do We Really Know About the Future of Boston's Property Market?
The reality is that the ink on the new tax law has barely dried yet. People are still digging in to discover what the perks and disadvantages will be. Of course, there are also unintended consequences in the mix that can both help and hurt taxpayers. One thing that's for certain is that there really is no scenario where Boston's rental market can be expected to cool off at any point in the near future. The city's rental market would have continued to heat up whether or not a new tax bill was signed. However, the provisions in the bill that take away some benefits for homeowners will certainly only add fuel to what was already a sizzling market.
The real results of the tax law may not be felt until after 2018 is already over. This will certainly be a year of learning for the residents, landlords, buyers and real estate agents of Boston. Anyone who had plans to end a lease and grab a new rental somewhere in the city may be forced to put those plans on hold once the competition for desirable apartments becomes tighter. Anyone signing a lease in Boston within the next few weeks may want to inquire about the option to extend a one-year lease to be a two-year lease. This could lock in a rate and create a nice buffer from the rising rents that may be in store. The one thing that is nearly certain is that every apartment in Boston suddenly became a little more valuable once ink was put to paper on the new tax rules.