The Fiscal Cliff: A Crisis for the Housing Industry?

Is the housing industry headed over the “fiscal cliff” on January 1, 2013? Before the November presidential election, most Americans had never heard of such a cliff, but with the expiration of the Budget Control Act of 2011 just around the corner, the term is hitting news headlines around the country. Referring to

the deep spending cuts and limits as well as increased taxation

in some sectors, particularly the defense industry and many social services, the implications of the fiscal cliff are far reaching, with an indirect but significant impact on income property investing.

The recently coined term “fiscal cliff” is an apt description of the impending budget crisis. With changes to the financial landscape on many levels, both local and national, programs and services as well as a variety of industries face major shortfalls. According to a recent article in Realty Biz News, the looming fiscal cliff may raise problems for income property investors who are diversifying holdings by purchasing properties in a variety of local markets.

Although the budget crisis itself may not have an effect directly on the status of investment properties, both residential and commercial, it’s likely to affect conditions in individual local areas in major ways. That, in turn, can affect how income property is bought, sold, and maintained.

The major industry facing massive cuts aimed at reducing government outlay is the military. The closing of bases, cutting of personnel, and restrictions on purchasing designed to cut costs at bases around the country has a direct impact on the housing industry and, in particular, rental properties of the kind owned by independent investors. In areas hard-hit by budget cuts, the demand for rental housing could significantly decrease, leaving investment properties vacant for long periods of time and slowing local development in neighborhoods dedicated to serving a military installation.

Other domestic areas affected by the “cliff” are student loans, social services block grants, vocational rehabilitation, and similar types of social programs. Although these programs, administrated on both the national and local levels, also have little direct relationship to housing issues, budget reductions in these areas can also contribute to changing the rental property market in some areas.

Funds allotted for disaster planning and relief are also expected to take a hit – a possibility that does have specific implications for housing. Owners whose properties are damaged in natural disasters may receive little or no disaster relief.

The budget bus is poised on the edge of the fiscal cliff unless negotiations head off the end of the Budget Control Act. Jason Hartman advises income property investors who have diversified their property portfolio into different markets to educate themselves about how the provisions of the Act are likely to affect rental properties in a given area. Indirectly or directly, the fiscal cliff looms ahead, ready to touch homeowners and income property investors alike. (Top image: Flickr| banggoesanotherday)

The American Monetary Association Team

 

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