The New Tax Plan:
Should You Move Now?

There is strong consensus among economists, real estate professionals and business journalists that the Federal tax plan passed by Republicans in late December will hurt housing markets in proverbial “blue” states.  Those states, most of them in the North, include New Jersey, New York, California and my own state of residence, Connecticut.  The experts predict real estate value losses of as much as 10% in states that feature relatively high income-tax burdens.

Singin’ the Blues

Provisions of the tax plan have been assailed by some as purely “political,” as punishment for those states that consistently vote Democrat.  Real estate values in the blue states are generally higher -– in some cases, much higher -– than in their companion “red” states. In Livingston, NJ, where I was raised, a house not unlike the one I grew up in more than 50 years ago is currently listed for $765,000.  Its tax assessment last year was nearly $17,000. The new tax plan caps the combined deduction for property taxes and state and local income and sales taxes at $10,000 per filing.  Therefore, in cases where the property tax on a home exceeds the $10,000 limit, taxpayers will lose the deduction on amounts paid over that level and will not be able to claim any deduction on their state and local income taxes.  (In New Jersey, couples earning $100,000 are taxed at the rate of 6.37%.)
      On a list of the top 30 counties in the U.S. that will be hit the hardest by the $10,000 limit, every one was located in either New Jersey, New York, Illinois or Connecticut.  (Essex County, NJ, topped the list with a prediction of a 10.5% price drop in real estate values; Livingston is located in Essex County.)  These states also have large populations of retirees and near retirees, and you can bet more and more of them are considering a move to the Sunbelt, as much for tax reasons as for climate purposes.

$ Per Square Foot Tells Story

As I prepare for a presentation in Connecticut later this month for retirees considering a move South (see sidebar), I have been looking more closely at real estate prices and property taxes.  In general, I am finding homes priced at under $150 per square foot in many nice communities in the region, comparing favorably with the $200-plus for comparably sized and outfitted homes in the north.  Some of these southern homes are way under $150 per foot, such as the 2,100 square foot home facing Lake Thurmond in Savannah Lakes Village in South Carolina.  It is priced at just $219,000, or a smidgen over $100 per foot.

Overall costs of living, which comprise more than property taxes and income taxes, are generally much lower in the South than above the Mason-Dixon Line. They have been so for the 15 years since I began writing about southern real estate, indeed probably forever.  The first house I ever bought, in Marietta, GA, was brand new, about 2,400 square feet and was tax-assessed at $500 per year in 1978.  The house cost $43,000.  (From what I can tell, homes in the area are selling for around $400,000 today and property taxes are around $5,000.)  

Unintended Political Consequences?

With the punishing provisions of the new tax plan for the blue states, the comparison of North and South appears even more stark and will cause significantly more migration to the Sunbelt in coming years, with consequently higher prices for homes, more burdens on local and state services and, eventually, higher taxes.  That might not occur for a generation or two, but what is more likely in the short term is that the political landscape will change.  States like Georgia and North Carolina, already showing a slightly less conservative profile owing to years of newly arrived Yankees, could turn aqua in the next decade and royal blue in the years beyond.

Politicians aren’t known for thinking about consequences beyond the next election, and they are rarely careful about what they wish for.

Larry Gavrich
Founder & Editor
Home On The Course, LLC