Associations say Inflation Reduction Act hurts LBM industry

With President Joe Biden putting his signature on the Inflation Reduction Act (IRA), industry associations are weighing in on the ramifications of the legislation.

Following the passage of the bill by the U.S. House of Representatives and U.S. Senate, Biden signed the legislation into law bringing a conclusion to lengthy negotiations between the administration and lawmakers that began last summer. 

The bill totals $430 billion in federal investments toward healthcare, climate ,and energy programs.

While the legislation is aimed largely at climate change and corporate tax initiatives, the IRA includes multiple housing-related provisions to boost affordable green energy investments for communities, the National Lumber and Building Material Dealers Association (NLBMDA) notes.

This includes:

• $2.15 billion to acquire and install low-embodied carbon materials and products for use in the construction or alteration of buildings under the jurisdiction of the General Services Administration.
• $100 million for EPA, the Federal Highway Administration, and General Services Administration to identify and label low-embodied carbon construction materials and products based on environmental product declarations and other criteria.
• $100 million to provide grants under the Wood Innovation Grant program for constructing new facilities that deploy mass timber and other innovative wood products.
• $1.8 billion for hazardous fuel reduction projects on federal forest lands.
• $50 million for a competitive grant program for states to pay private forest land owners for implementing forestry practices on private forest land that provide measurable increases in carbon sequestration and storage beyond customary practices on comparable land. The bill specifies that these payments would be separate and distinct from payments landowners are receiving from private carbon markets.
• $50 million for the U.S. Forest Service to develop and carry out activities and tactics for the protection of old-growth forests on National Forest System land and to complete an inventory of old-growth forests and mature forests within the National Forest System.
• $700 million to provide competitive grants to states to acquire land with priority given to grant applications that offer significant natural carbon sequestration benefits or provide benefits to underserved populations.
• $1.5 billion to provide multiyear competitive grants to state and local governments for tree planting and related activities.
• $2,000 per unit tax credit for consumer purchases and installation of wood and pellet stoves. This credit is extended for 10 years.

The NLBMDA sent a letter to Congressional leadership urging the rejection of tax increases on America’s small businesses that are being used to fund the Inflation Reduction Act, which includes a $52 billion tax hike on pass-through businesses by extending the cap on losses a business owner is permitted to claim. 

With many lumber and building material dealers organized as pass-through entities, this will hurt the LBM industry and the nation’s small business community.

The NLBMDA said it successfully prevented the inclusion of numerous tax hikes that would have impacted membership, such as increases to the Estate Tax and the Net Investment Income Tax. 

But the association also notes that tax policies in the Inflation Reduction Act will harm individually and family-owned businesses and the NLBMDA has actively opposed the legislation due to these concerns.

The National Association of Home Builders (NAHB) has no love for the new legislation either.

In a prepared statement issued by the NAHB, Chairman Jerry Konter - also a home builder and developer from Savannah, Ga., - said,  “Sens. Chuck Schumer (D-N.Y.) and Joe Manchin (D-W.Va.) must have been peering through the looking glass when they named their legislation the ‘Inflation Reduction Act.’ Not only does this legislation fail to ease any inflationary pressures on housing, arguably the nation’s No. 1 economic concern, it also contains several onerous provisions that will exacerbate the nation’s housing affordability crisis.

“Housing costs account for 40% of the Consumer Price Index, and with home prices and rents rising even faster than inflation, Americans are being squeezed hard. And while this bill would do little to wring inflation out of the overall economy, it contains several changes to the taxation of real estate and new building and energy code requirements that will raise housing costs for millions of consumers while doing very little to provide meaningful energy savings.

“Rather than chasing this flawed bill down their rabbit hole, Senate Democrats need to rework this legislation by eliminating onerous provisions that would make homeownership and renting even more expensive for America’s hardworking families and adding resources to expand the supply of badly needed affordable housing.”

An Aug. 2 letter from the NAHB expressing opposition to the bill and sent to Senate leadership can be read here.  

The NAHB said it opposes the legislation because it fails to ease inflationary pressures on housing and contains troublesome new building and energy code requirements that could raise the cost of housing for home owners and renters. 

Working with Sen. Kyrsten Sinema (D-Ariz.), the NAHB notes that it was able to obtain key changes to the bill as it relates to carried interest and how companies can deduct depreciated assets from taxes.

Although the bill does include positive provisions for housing, NAHB believes that overall the bad outweighs the good, despite the 11th hour changes to the legislation that NAHB helped to push through.

As the House was debated the bill, Financial Services Committee Chairwoman Maxine Waters (D-Calif.) took to the House floor and cited a key NAHB concern: “We can no longer afford to have housing as an afterthought, a ‘nice to have,’ or simply something that can wait until later,” Waters said. “It is foundational to the prosperity of families, key to a healthy economy, and crucial to fighting inflation. Yes, I’m disappointed. I’m going to vote for this bill because so many people are going to benefit in different ways, but I’m disappointed that housing does not show up in any way in this bill.”

In the tax arena, NAHB strongly supported the efforts of Sen. Sinema to kill an provision on carried interest that would have affected existing real estate partnership agreements and the treatment of Section 1231 gains at a time when housing has entered an industry recession.

However, the bill includes structural changes to the Section 45L new energy efficient home tax credit, which provides builders a $2,000 tax credit on homes by meeting specific energy savings on homes built above the baseline IECC, that would effectively render the tax credit null and void for most builders.

Changing the rules to make Energy Star the sole means to qualify for the 45L tax credit is counterproductive, according to the NAHB,  because it is a niche market that will never be widely adopted — less than 10% of single-family and multifamily units were certified in 2020.

On the positive side, the NAHB said the legislation includes long-term extensions for many other existing energy tax incentives, and $4.3 billion for the HOMES Rebate Program, an energy-efficient retrofit program.

The NAHB points out that it fought successfully to defeat a measure that would have extended the 3.8% Net Investment Income Tax (NIIT) to active investors, including NAHB members. 

The NIIT applies to capital gains and rental income, among other investment streams, and would have directly increased the cost of housing.