Current Market Challenges
With mortgage rates remaining high, many homeowners across the US are opting to stay in their current homes rather than sell. This reluctance to sell stems from the belief that waiting for lower mortgage rates or home prices would be more advantageous. However, this trend is exacerbating the existing housing shortage by keeping homes off the market, particularly entry-level or “starter” homes.
The Need for Starter Homes
The demand for starter homes has intensified due to various factors, including a surge in homebuying during the pandemic, an ongoing shortage of affordable housing, and a focus by developers on luxury properties. These starter homes play a crucial role in enabling first-time homebuyers, predominantly millennials and Gen Zers, to enter the housing market and establish their households.
Biden’s Housing Policy Proposals
In response to the housing shortage, President Joe Biden unveiled several housing policy proposals aimed at addressing both supply-side issues and assisting individuals with housing affordability challenges. One key proposal involves offering a $10,000 tax credit to US homeowners who sell their homes, provided the sale price is below the local median home price. This incentive is designed to encourage the listing of more affordable starter homes, thereby expanding homeownership opportunities for prospective buyers.
Addressing the Root Cause
While the tax credit initiative may help alleviate the shortage of starter homes to some extent, it does not directly tackle the underlying cause of the housing crisis, which is a shortage of an estimated three to seven million homes nationwide. To address this fundamental issue, Biden has proposed additional measures focused on the creation and preservation of housing units. These include expanding tax credits for builders of low-income housing and allocating a $20 billion competitive grant for innovative affordable housing projects.
Expert Insights
According to Redfin chief economist Daryl Fairweather, while the tax credit for selling starter homes may have a limited impact on the housing crisis, Biden’s broader proposals aimed at creating new housing units hold greater promise. Fairweather emphasizes the potential transformative effect of building two million additional homes over the next decade, highlighting the long-term economic implications of such initiatives.
