Rental Housing Tax Expensing Could Direct More Relief Toward New Construction

The central financial case for rental housing expensing is its focus: tax relief would follow new construction rather than flow broadly to existing homes and buildings. That distinction matters in a market where analysts across the policy spectrum say the United States needs millions more homes. The Rental Housing Investment Act (RHIA) would let developers deduct some construction costs sooner, making the tax treatment of new rental buildings less punitive and tying the size of the benefit to building activity.

Current rules generally require apartment developers to recover building costs over 27.5 years. The delay reduces the present value of deductions to roughly 50 cents for each dollar invested, according to the estimate cited by the Tax Foundation. In effect, tax is assessed on income that the investment does not generate in real terms. Projects with thin expected returns may consequently become harder to justify, leaving fewer units in the pipeline.

Equipment purchases can generally be deducted immediately, a treatment recently made permanent. Residential structures face a much longer recovery period. That gap can distort investment decisions: a project’s economics depend partly on when costs become deductible, not just on the building’s expected rental income. Faster deductions would reduce that distortion for eligible projects.

RHIA focuses the benefit on new rental units

Sen. Lisa Blunt Rochester (D-DE) introduced RHIA in March, with a bipartisan House companion introduced in May. The proposal would allow immediate deductions of up to $150,000 per unit for new rental housing in buildings with at least two units. Projects meeting affordability tests modeled on the Low-Income Housing Tax Credit program could qualify for a higher limit of $250,000 per unit.

The proposal’s original-use condition is central to its design: the building’s first use must begin with the taxpayer claiming the deduction. That makes newly constructed rental housing eligible while excluding ordinary purchases of existing apartment buildings. As a result, the revenue cost would be concentrated on projects that add to the housing stock.

This focus distinguishes expensing from many housing subsidies. First-time buyer credits, tax-preferred home purchase accounts and rental assistance can help pay for housing whether a home is newly built or already occupied. Their benefits reach the existing stock as well as new supply. For context, existing home sales are about six times new home sales, so a purchase subsidy can largely support transactions involving homes that were already built.

Expensing without an original-use condition would have a broader reach. Investors spent about $166 billion buying large apartment properties in 2025, compared with roughly $115 billion spent building new multifamily housing. Allowing deductions on both new and used property could therefore expand the fiscal cost without adding a corresponding incentive for new construction. It could also encourage owners to trade existing buildings to accelerate deductions.

Construction activity shapes where relief goes

A comparison of Austin and San Diego illustrates how a construction-linked tax benefit would be distributed. The metro areas have similar housing stocks and annual home sales, but Austin permits roughly three times as many new multifamily units. A subsidy tied to home purchases would be similar in scale in both places. Expensing tied to new construction would deliver a larger benefit where more units are being built.

The figures below are illustrative, not forecasts. They assume full take-up of RHIA, no behavioral response, a binding $150,000 per-unit limit, a 26.6 percent average marginal tax rate and a present value of 56 cents per dollar for deductions under 27.5-year straight-line depreciation.

Table 1. Illustrative annual tax relief in Austin and San Diego

On those assumptions, RHIA would provide about $353 million in annual present-value tax relief in Austin and $120 million in San Diego. A $10,000 subsidy for each home purchase would cost about $357 million and $317 million, respectively. The contrast shows the different signals: purchase assistance tracks transactions, while construction expensing tracks the number of eligible units being added.

New construction accounts for most of the proposed benefit

The same distinction appears in national housing figures. The country has about 147 million homes, sees roughly 4.8 million home sales annually, and builds around 1.5 million homes a year. A policy supporting the housing stock spreads benefits across existing homes; a policy tied to sales reaches both new and existing properties; construction expensing is directed toward new units.

Under the estimates presented for RHIA, at least 93 percent of the tax relief would benefit newly built homes. The residual would go to teardown projects that replace an existing building with a smaller number of units. An incremental-units test could exclude that case by limiting deductions to units added beyond the number already on the site.

Other policy designs would direct a smaller share of their cost to new housing. The estimate is about 1 percent for policies aimed broadly at existing homes, reflecting new homes’ share of the total stock in a given year. Purchase-focused policies would send about 15 percent to new homes, based on the share of sales involving newly built properties. Expensing without an original-use condition could direct roughly half of the relief to new construction, though the estimate may be high.

These shares carry uncertainty. The estimate for unrestricted expensing depends on how many purchased apartment buildings were newly completed that year, the value of land in purchase prices and small-property transactions. The RHIA estimate uses a 6.9 percent single-family teardown share as an upper bound; that likely overstates the multifamily share because a redevelopment can produce many units on one former building site. Both calculations assume no behavioral response, which may understate the difference between the proposals.

Revenue estimates depend on economic effects

Expensing also changes the timing of deductions, so its fiscal cost depends on whether the analysis accounts for changes in investment and economic activity. The Tax Foundation estimates that full expensing for all structures would increase primary deficits by $537 billion over 10 years under a conventional score. Its dynamic estimate, which includes projected economic effects, would reduce primary deficits by $434 billion. Those estimates concern all structures; RHIA would cover a narrower category, though the source argues it could have a similarly large gap between conventional and dynamic scores.

Tax treatment alone won’t resolve the housing shortage. Local rules determine what can be built, and a federal deduction cannot by itself make a restrictive market build like a faster-growing one. But the design of federal tax relief still matters: a deduction limited to new rental construction makes the fiscal incentive track additions to supply. The key measure for policymakers is therefore not only how much revenue a proposal forgoes, but how directly that cost supports new units.