HiddenLevers War Room discussing the new Tax plan

1. High-Tax State Exodus
13 Dec 2017
War Room

2. War Room
Idea Generation
Contextual Training
Scenario Updates
HiddenLevers runs on SCENARIOS like Facebook runs on PHOTOS

3. The Skinny
US Housing Market Today
Potential Housing Stumbles
Scenario: US Coastal Exodus
High-Tax State Exodus
NEW

4. HiddenLevers
THE SKINNY

5. Extreme Weather
Epic Rebound
High-Tax State Exodus - Why Ripe?
sources: HiddenLevers, CNBC,
Tax Changes

6. High-Tax State Exodus – Let’s take a Look
See it on HiddenLevers

7. High-income coastal homeowners:
5 FIGURE TAX HIKE COMING
Finance sector inseparable from
real estate, will suffer if it does
Home prices
protected by slow
home construction
High-Tax State Exodus – Take-aways
Push factors bigger than taxes
creating Coastal Exodus

8. HiddenLevers
US HOUSING MARKET TODAY

9. TODAY: US Housing Pulse Check
Avg
1.46M
peak
2M
Housing
Starts
Now: 1.29M
12% below
50y average
Low
870k
US home prices are 6% above 2006 peak – but housing starts
are still 12% below the long-term average, underpinning prices.
sources: HiddenLevers, WSJ, Reuters, St. Louis FRED
US Home Prices
Case-Shiller
Index
Now: 195.5
2006: 184.6

10. TODAY: Real Estate in Equity Markets
sources: HiddenLevers
Finance Sector (VFH)
benefited as much from home
price rise as real estate sector
+50%
+138%
+214%
+101%
+217%
March 2012 – US Home
Prices reach lowest point
since 2004
Since
03/2012

11. TODAY: Sources of US Housing Demand
sources: HiddenLevers, WSJ, LA Times, NY Times, Builder Online, SJ Mercury News, The Mortgage
FOREIGN
BUYERS
2017 $31.7B
2016 $27.3B
2017 $19B
2016 $8.9B
RISING
INCOMES
First time
home buying
highest since
2000
Rising income
means rising
family
formation
MILLENIALS
Paying
premiums for
proximity to
business
districts
Less interested
in commuting
Single women
buy more than
single men
RETIREES
Not really
downsizing
Not letting
single-family
home areas
rezone for
smaller homes,
or multiple
homes per lot.

12. TODAY: High SALT Areas
sources: HiddenLevers, Business Insider, FRED
SF LA
USA BOS DC
Home Price Growth 2012-2017
NYC
California = Highest Risk
CA prices outpace USA average
+
high taxes
State + Local Tax Deduction, by County

13. HiddenLevers
POTENTIAL HOUSING STUMBLES

14. STUMBLES: History on Deductions
sources: HiddenLevers, TaxHistory, GFOA, NYT, TheBalance, FAS
Allows home owners to reduce taxable
income, promoting homeownership
Introduced: 1986 as part of the Tax
Reform Act
2010 – Controversy to eliminate tax
loopholes + add cut-off points to select
exclusions such as mortgage deduction.
Allows for State and Local Taxes to be
deducted to prevent double taxation
Introduced: 1862 as part of
federal income taxation
1985 - Attempt to repeal by Reagan
1986 – Eliminates deductibility of state
sales tax (Re-introduced in 2004)
Mortgage DeductionState + Local Taxes (SALT)

15. STUMBLES: High-tax State Impact
sources: HiddenLevers, NY Times, Motley Fool, Business Insider
Average State and Local Tax (SALT) Deduction for High-Income (200k+) Tax Filers
States with Highest
SALT Deduction
Repeal of SALT deduction hits coastal metros like NYC, SF, LA, and DC hardest.
Rough estimates for a family with 600k income + 100k SALT deductions:
+22k AMT Repeal
-37k loss of SALT deductions at new top tax rate
-15k under new plan

16. STUMBLES: SALT deductions vs Bigger Problems
sources: HiddenLevers, NY Times, USA Today, Washington Post, NY Daily News, Coalition for the Homeless, Newsweek, HUD, Daily Californian,
Faster job growth elsewhere
Climate disasters too frequent
Pushback on denser housing
Rising homelessness = trouble
Tax plan kills SALT deductions
-> changes valuation calculus
-> high-tax states mostly on coast
Coastal Correction
Coastal Exodus
2009-16
USA -13%
2017
USA +0.7%
NYC +4%
LA +26%
SF FLAT
Alameda +20%
Homeless in USA
Homeless in USA

17. HiddenLevers
SCENARIO: US COASTAL EXODUS
NEW

18. UPDATE: US Housing = Too Basic
Sources: HiddenLevers
US Coastal ExodusUS Housing

19. BAD
GOOD
SCENARIO: US Coastal Exodus
Home Prices
-15%
S&P 500
-21%
Home Prices
+5%
S&P 500
+6%
$
CHINESE
BUYERS
REAL
DRIVER
Home Prices
-5%
S&P 500
-5%
-10% IN
HIGH-TAX
MARKETS
Foreign Money Steps In
High-Tax State
Correction
UGLY
Tax Plan +
Climate Change
LIFE IN
COASTAL
CITIES JUST
NOT WORTH
IT
NY
CA
NJ

20. High-Tax State Exodus – Let’s take a Look
See it on HiddenLevers

21. High-income coastal homeowners:
5 FIGURE TAX HIKE COMING
Finance sector inseparable from
real estate, will suffer if it does
Home prices
protected by slow
home construction
High-Tax State Exodus – Take-aways
Push factors bigger than taxes
creating Coastal Exodus
Sources: HiddenLevers