How the “Big Beautiful Bill” Could Reshape Southern California’s Housing Market
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By Natalie Boyle, REALTOR®, Founder of Verso Homes (DRE #01329012)
In early July 2025, former President Donald Trump signed what has been widely dubbed the “Big Beautiful Bill”—a sweeping piece of federal legislation that makes significant changes to tax policy, infrastructure investment, housing incentives, and economic development programs. While national in scope, its ripple effects are expected to have profound implications for high-cost housing markets like Southern California. From expanding tax deductions for homeowners to incentivizing new construction and loosening development restrictions, this bill could help—or in some cases, complicate—the region’s ongoing housing affordability crisis.
Get the complete breakdown of the “Big Beautiful Bill” and see how its sweeping tax and housing policies may reshape homeownership, development, and investment in Southern California. Ideal for buyers, investors, and builders navigating today’s complex real estate landscape.
The “Big Beautiful Bill” is a nearly 900-page legislative package that builds upon and makes permanent many of the tax reforms from the 2017 Tax Cuts and Jobs Act. It includes roughly $4.5 trillion in tax cuts, increased infrastructure and defense spending, and significant adjustments to key deductions such as the State and Local Tax (SALT) cap, mortgage insurance write-offs, and capital gains treatment for real estate investors.
Its passage comes at a critical time: housing affordability in California is at near-record lows, interest rates remain elevated, and construction has not kept pace with population growth. Let’s explore how this bill could affect buyers, renters, investors, and builders across Los Angeles, Orange County, San Diego, and the Inland Empire.
1. SALT Deduction Expansion: A Win for Wealthier Homeowners
One of the headline provisions of the bill is the increase in the SALT (State and Local Tax) deduction cap—from $10,000 to $40,000 for joint filers. This is especially impactful in California, where homeowners pay some of the highest property taxes and state income taxes in the country. In markets like Newport Beach, Irvine, or Beverly Hills, where annual tax bills often exceed $30,000, this provision restores valuable deductibility and could reinvigorate interest in luxury real estate.
However, this is a benefit that skews toward higher-income households. Most middle-income buyers in the region do not itemize deductions, instead opting for the now-permanently expanded standard deduction ($31,500 for married filers). As a result, this provision may have limited impact on broad affordability but could bolster the high-end market.
2. Mortgage Insurance Deduction Returns
For first-time homebuyers in Orange, Riverside, or San Bernardino counties, the return of the mortgage insurance deduction is a modest but welcome change. Many first-time buyers put down less than 20%, which means they must pay for private mortgage insurance (PMI). The bill reinstates the deduction for PMI premiums, which can save homeowners hundreds of dollars annually in taxes. This makes entry-level homeownership just slightly more attainable for working-class families.
3. Development Incentives Could Boost Supply
The bill includes robust support for increasing the housing supply through enhanced Low-Income Housing Tax Credits (LIHTC) and Opportunity Zone programs. The LIHTC enhancement could lead to thousands of new affordable units being built in high-density areas like downtown Los Angeles, Anaheim, and Oceanside over the next decade.
Opportunity Zones—many of which are located in Southern California—also received a permanent extension. This means investors who place capital into designated low-income tracts and hold their investments for 10 years can eliminate capital gains taxes on their returns. Expect increased interest in building rental communities and mixed-use projects in places like Inglewood, Santa Ana, and parts of Riverside County.
4. CEQA Reform at the State Level Aligns with Federal Push
Separately but significantly, California legislators recently passed changes to the California Environmental Quality Act (CEQA), exempting many infill housing projects from exhaustive environmental review. These state-level reforms, when combined with the federal incentives in the “Big Beautiful Bill,” could help break through the regulatory gridlock that has long stalled development in high-demand areas.
In particular, this could unlock new housing supply in Los Angeles and Orange County, where developers often faced years-long delays due to environmental challenges. For buyers, this means more new inventory over time. For renters, it could eventually lead to rent stabilization as supply catches up to demand.
5. Implications for the Rental Market
The rental market in Southern California remains hot. Vacancy rates are low, especially in coastal cities, and rent prices continue to rise faster than inflation. According to the USC Casden Forecast, average rents are expected to grow by 2–3% annually through 2026, driven by both high demand and limited new construction.
While the “Big Beautiful Bill” doesn’t include direct rent relief provisions, it indirectly impacts renters by expanding the construction of affordable units and providing investors with more incentives to create long-term rental housing. Over time, this could help cool the market slightly, particularly in the Inland Empire and northern San Diego County, where land is more readily available for development.
6. 1031 Exchanges and Investor Confidence
Real estate investors are big winners under this legislation. The bill preserves 1031 like-kind exchanges, which allow investors to defer capital gains taxes when they reinvest in similar properties. This tax deferral is a major reason Southern California attracts so much real estate capital, especially in cities like Huntington Beach, San Clemente, and Pasadena.
Expect this to continue encouraging real estate investment in both multi-family and single-family rental markets. Institutional investors are already scaling up build-to-rent projects in the Inland Empire—this law makes that model even more appealing.
7. What This Means for Buyers in 2025 and Beyond
Buyers will benefit in subtle but meaningful ways from this legislation. The return of the mortgage insurance deduction and increased standard deduction puts a little more money in the pockets of everyday Californians. For high-income buyers, especially those purchasing in luxury markets, the SALT deduction cap increase could significantly reduce effective tax burdens.
However, the macroeconomic environment remains challenging. Mortgage rates are still hovering around 6–7%, and monthly ownership costs are significantly higher than pre-pandemic levels. In many parts of the region, it still takes an income of over $200,000 to comfortably afford a median-priced home.
Final Thoughts
While no single piece of legislation can fix California’s housing crisis, the “Big Beautiful Bill” introduces meaningful incentives that—when paired with aggressive state-level reforms—have the potential to reshape the landscape. Builders may find it easier and more financially viable to develop affordable housing. Investors will find the tax environment favorable. And buyers, especially at the upper end, may experience some tax relief.
Southern California remains one of the most dynamic and desirable housing markets in the nation. Understanding how federal and state policy changes interact is essential for making informed decisions—whether you're a first-time buyer, experienced investor, or builder exploring new opportunities.
*This blog provides general information and does not constitute tax, legal, or financial advice. Please consult a professional advisor for guidance specific to your situation.
Natalie Boyle REALTOR®, Founder of Verso Homes (DRE #01329012) Over 15 years helping South OC homeowners discover their perfect community. Learn more about Natalie →
