Today’s housing market is reportedly a buyer’s market, but home prices offer families little comfort that they can find a new home.
Last month, the median price of an existing home hit an all-time high of $440,600. Homebuyers need to earn $109,152 to qualify for a 30-year fixed mortgage at 6.57% to afford a home around that price point.
Despite rising sticker prices, housing affordability has improved a little over the past year, according to a National Association of Realtors index. Lower mortgage rates and income growth outpacing home values are providing a little financial relief for Americans.
Housing affordability is a key challenge for family policy. Younger generations are delaying milestones like forming households and having children because of high costs of living. First-time homebuyers, families looking to expand, and retirees who can afford to buy are competing for a limited supply of homes. It’s a problem that Congress and state and local policymakers cannot ignore.
Beyond recent energy shocks, housing costs are a major driver of inflation, accounting for about one-third of the consumer price index.
Rent and mortgages are typically the largest household expenses, but renters shoulder the heavier burden of housing affordability. Half of all renters — 23 million households — spend more than the recommended 30% of their income on shelter compared to a quarter of homeowners — 21 million households.
Rent increases and home price spikes during and after the COVID pandemic shrank financial margins for cost-burdened households, leaving less money for essential expenses such as food, medicine, health care, and child care and reducing their quality of life. Low-income households fared worse, often choosing between essentials that are critical to their well-being.
Housing unaffordability is not uniform across the country. Residents of Left-leaning states tend to have higher costs of living and, with a few exceptions like Florida and Texas, tend to be more burdened by housing costs.
This is not by accident. Government policies have driven up housing costs. Undoing them is the best way to push costs back down.
First, the U.S. has underbuilt up to 5.5 million homes due to costly home-building restrictions, onerous zoning and land-use regulations, and opaque, byzantine permitting processes. Green energy mandates on home appliances compounded the problem in recent years. Government regulations at every level and stage of building add a staggering $132,000 to the price of a new home, according to the National Association of Home Builders.
The recently passed bipartisan 21st Century ROAD to Housing Act offers needed deregulation in the housing industry. Despite some counterproductive measures, such as new limits on institutional investors acquiring homes, the law is a down payment on needed reforms that will expand housing supply and bring down prices in the long run.
Local, state, and federal policymakers must keep up the momentum by eliminating or reducing more unnecessary regulations that have no impact on safety but a disproportionate impact on price. Reforming land-use regulations to allow for apartments and multi-generational living would be transformational for families. Texas added 120,000 new homes from 2015 to 2024 — more than three times the national growth rate — and brought down rent prices after changing zoning regulations and speeding up the permitting process.
Allowing for accessory dwelling units (ADUs) with primary residences, such as converted basement apartments or backyard cottages, will help seniors age in place with their families or caretakers. Older women not only gain companionship, but also income-generating opportunities in their later years. California has found success expanding affordable apartments for rent by reforming its laws to allow ADUs.
Second, potentially millions of existing homes could be on the market for sale. However, long-time homeowners—who face staggering tax bills because of inflationary growth of their homes’ nominal values despite potential real losses — are locked into their homes.
Currently, homeowners can exclude $250,000 of gain from taxes for singles (and $500,000 for married couples filing jointly), but those exemption levels have not been updated for inflation. Consequently, roughly 29 million single households alone face a potential capital gains tax nightmare because their gains exceed these exemption limits.
To motivate homeowners to sell their primary residences for families looking to move into bigger homes or to first-time homebuyers, Congress could double the current gains tax exemption to $500,000 for individuals and $1 million for couples. At a minimum, exemptions should be pegged to inflation.
Too many Americans feel locked out of the dream of homeownership. But policymakers hold the keys to unlocking increased housing supply. Texas and California demonstrate that deregulation works. Cutting the red tape and reforming the tax code are sensible solutions that can bring homeownership back within reach.
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This is part of a series of op-eds based on Independent Women’s new report, “Flourishing Families: An Agenda to Help Families Thrive.” The report, found here, details ways to support families without direct government subsidies or radically distorting the tax code to redistribute resources to families.
Patrice Onwuka is the vice president for economic policy and director of the Center for Economic Opportunity at Independent Women.
