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CHAPTER SEVENCHAPTER SEVEN
SINGLE FAMILY HOUSING: PRICING, INVESTMENTS, AND
TAX INVESTMENTS
Demand - Single FamilyDemand - Single Family House Prices House Prices
• Population Growth
• Household formations
• Employment
• Household Income
• Interest Rates
• Federal Income Tax Policy
• Cost of Renting
Tax Treatment of Tax Treatment of Personal ResidencePersonal Residence
• Interest deductions– Primary residence– Second residence
• Maximum interest deductions– Acquisition debt- $1,000,000– Home equity debt- $100,000
• Points on mortgage loans• Real Estate taxes• Capital gain exclusion
Tax Treatment of Tax Treatment of Second ResidenceSecond Residence
• Interest
• Points- amortized
• No capital gain exclusion
• Vacation homes- special rules
Advantages of RentingAdvantages of Renting
• Flexibility
• Lack of down payment
• Credit quality of resident
• Risks of ownership
• Maintenance
• “Bubbles” in house price
Pricing Property: AppraisalsPricing Property: Appraisals
• Market or sales comparison approach
• Cost approach
• Income approach
Sales Comparison ApproachSales Comparison Approach
• Adjustments for– Time– Location– View– Design appeal– Quality of construction– Age
Sales Comparison Approach Sales Comparison Approach ContinuedContinued
• Adjustments continued:– Condition– Size– Quality of interior– Functional utility– Type and condition of systems; i.e.,
HVAC– Sale or financing concessions
Cost ApproachCost Approach
• Value of land plus estimate of improvements
• Depreciation– Physical depreciation– Functional obsolescence– External obsolescence– Curable vs. incurable
Income ApproachIncome Approach
• Gross rent multiplier
• Difficult to use for single family residential properties