Main Facts
America is facing an unprecedented housing affordability crisis, driven primarily by a severe structural shortage of supply. According to consensus data from housing analysts at the American Enterprise Institute (AEI) and the Center for American Progress (CAP), the United States requires millions of newly constructed homes to restore historical vacancy levels, normalize household formation rates, mitigate severe overcrowding, and bring down soaring rents and home prices.
While much of the public debate focuses on local zoning laws, the federal tax code itself acts as a major catalyst for the problem. The tax code inherently favors homeownership while systematically penalizing the development of rental housing. Businesses that purchase machinery or equipment can immediately deduct the full cost—a pro-growth policy recently made permanent for equipment. By contrast, real estate developers who build multi-family apartment complexes must depreciate their capital costs over an arduous 27.5-year timeline.
This protracted schedule drives the present value of depreciation deductions down to roughly 50 cents on the dollar, forcing developers to pay taxes on income that fundamentally does not exist. This creates an invisible yet crushing tax penalty on multi-family residential projects. Without targeted tax reform, many projects fail to pencil out, leaving the nation’s housing stock stagnant and consumers economically vulnerable.
To counter this penalizing dynamic, policymakers have introduced the Rental Housing Investment Act (RHIA). This bipartisan legislation aims to allow developers of new rental housing (buildings containing two or more units) to immediately expense up to $150,000 per unit, rather than depreciating those costs over nearly three decades. For projects that meet specific affordability requirements—modeled after the Low-Income Housing Tax Credit (LIHTC) program—the cap rises to $250,000 per unit. By targeting only new construction, the proposal ensures that virtually every dollar of forgone tax revenue goes toward expanding housing supply.
Chronology of Legislative Action
The push for residential expensing and the introduction of the Rental Housing Investment Act follows a timeline of growing bipartisan recognition that supply-side tax reform is essential to solving the affordability crunch:
- Decades of Inequitable Depreciation: For generations, real estate structures have been subject to long recovery periods—currently 27.5 years for residential rental property—placing real estate development at a distinct disadvantage compared to short-lived business equipment eligible for immediate expensing.
- March 2026: Recognizing the widening gap in multi-family development and rental supply, Senator Lisa Blunt Rochester (D-DE) officially introduces the Rental Housing Investment Act in the United States Senate, proposing immediate expensing caps for newly constructed multi-family rental units.
- May 2026: Building bipartisan momentum, a companion bill for the RHIA is introduced in the House of Representatives, signaling broad legislative interest in leveraging the tax code to incentivize housing construction across diverse political districts.
- Ongoing 2026 Legislative Sessions: Economists and policy organizations, including the Tax Foundation, publish comprehensive dynamic scoring models and regional impact analyses comparing the RHIA’s targeted approach with broad-based homebuyer subsidies and rate cuts, highlighting the superior efficiency of new-capital expensing.
Supporting Data and Comparative Analysis
Evaluating the efficacy of housing policy requires examining where government subsidies and tax expenditures actually land. Most popular housing programs—such as first-time homebuyer tax credits, tax-preferred home purchase savings accounts, and broad rental assistance—function similarly to corporate rate cuts. They benefit both new and existing housing stock indiscriminately.
The Problem with Broad Subsidies
Because existing home sales heavily outnumber new home sales by roughly six to one nationally, the vast majority of broad homebuyer subsidies end up bidding on existing homes rather than stimulating new supply. For instance, in government-backed credit markets (such as Federal Reserve or Fannie Mae/Freddie Mac policies), capital flows evenly across old and new structures alike.
By contrast, the RHIA restricts its tax relief exclusively to property whose "original use… commences with the taxpayer." This original-use restriction is vital for real estate. In 2025, investors spent approximately $166 billion purchasing existing large apartment properties—roughly 45 percent more than the $115 billion spent building brand-new multi-family housing. Allowing tax deductions for the purchase of used property would double the revenue cost to taxpayers without providing any marginal incentive to build new homes.
Austin vs. San Diego: A Case Study in Building Incentives
To understand how targeted tax relief rewards cities that permit new construction, consider a comparison between Austin, Texas, and San Diego, California.
- Housing Stock: Both metropolitan areas feature a comparable scale—roughly 1.13 million homes in Austin and 1.27 million in San Diego—with similar annual home sales (about 36,000 and 32,000, respectively).
- Building Permits: Austin permits roughly three times the volume of new multi-family housing, averaging about 20,100 units annually compared to San Diego’s 6,800 units.
If the federal government deploys a broad $10,000-per-purchase homebuyer subsidy, it costs roughly $300 to $400 million in both metros, doing nothing to reward local upzoning or building. However, under the RHIA, assuming full uptake and standard marginal tax rates, the Austin metro would benefit by approximately $353 million per year due to its high volume of new construction, while San Diego would receive just $120 million.
Three times the building yields three times the financial relief, transparently rewarding municipalities that break down regulatory barriers and embrace housing growth.
| Policy Approach / Metric | Target Beneficiary | Share of Relief Benefiting Newly Built Homes | Primary Economic Distortion |
|---|---|---|---|
| Broad Property Tax Relief / Rental Assistance | Existing housing stock (147M homes) | ~1 percent | Subsidizes existing stock; ignores supply constraints. |
| First-Time Homebuyer Credits / Savings Accounts | Home purchasers (4.8M sales/year) | ~15 percent | Bids up existing home prices (6-to-1 ratio of old to new). |
| Expensing Without Original Use Test | Both new builds and existing property sales | ~50 percent | Encourages churning and trading of old buildings rather than new construction. |
| Rental Housing Investment Act (RHIA) | Newly constructed rental housing only | At least 93 percent | Rewards new construction and encourages municipal upzoning. |
Official Responses and Perspectives
Proponents of the Rental Housing Investment Act argue that the legislation represents a critical evolution in federal housing policy. Senator Lisa Blunt Rochester emphasized upon introduction that breaking down barriers to rental housing requires modernizing how the federal government treats residential capital investment. By treating developers more like other modern business innovators who can immediately write off equipment costs, the legislation removes a multi-decade bias that has stifled apartment construction.
Supporters in the House of Representatives have echoed these points, noting that local zoning reforms alone are often stalled by political inertia. While federal tax policy cannot force a municipality to upzone, a targeted expensing regime changes the financial calculus for developers, making projects that were previously economically unviable pencil out successfully.
Conversely, some fiscal hawks and traditional revenue estimators express caution regarding the short-term conventional revenue losses associated with tax expensing. Conventional fiscal scoring estimates that full structural expensing adds billions to federal deficits over a ten-year window. However, economic modelers counter these concerns by pointing to dynamic scoring principles: because full expensing is among the most pro-growth changes a tax code can undergo, it stimulates private capital investment, expands the long-term tax base, and ultimately reduces primary fiscal deficits when measured dynamically over the economic cycle.
Implications for the Future of American Housing
The implications of passing the Rental Housing Investment Act—or enacting comprehensive residential expensing—extend far beyond the balance sheets of real estate developers.
- Supply-Driven Price Correction: By directing nearly every dollar of tax relief toward new multi-family units, the policy directly attacks the root cause of the affordability crisis: insufficient housing supply. More units mean moderated rent growth and improved access for low- and middle-income families.
- Incentivizing Local Reform: Because the tax benefits scale directly with the volume of construction, cities and towns that streamline their permitting processes and embrace pro-growth zoning will capture a larger share of federal tax incentives. This creates a constructive, market-based incentive for local governments to relax restrictive zoning laws.
- Fiscal Responsibility Through Growth: Rather than relying on endless government subsidies, tax-preferred savings accounts, or demand-side stimulus that risks inflating home prices further, residential expensing relies on private-sector dynamism. It fixes a structural flaw in the tax code that currently penalizes new capital, ensuring that the U.S. economy can build its way out of the housing shortage efficiently and sustainably.
Ultimately, stopping the tax code from penalizing the act of building is a vital, pro-growth step forward—ensuring that America can house its growing population without providing unfair windfalls to existing, non-expanding capital.
