There is no question that the buzzword for this year’s midterm election is “affordability.” Affordability means a lot of things to a lot of different people, but a huge component here in Utah is home prices.
Utah is one of the fastest-growing states in the country. Families are moving here for opportunity. Businesses and new industries are coming here because of our strong economy, talented workforce and quality of life.
Skyrocketing housing prices and a lack of inventory of affordable homes for sale threaten Utah’s economic growth. Young families struggle to find homes they can afford, and employers have a harder time attracting workers who can afford to live near work. There is too much demand for too little inventory. That means prices are high and going higher.
In addition to Utah’s shortage of newly built homes, too few existing homes are coming on the market. There are many factors involved in that problem, like interest rate differences that discourage families from moving. Homeowners who locked in historically low mortgage rates in recent years are reluctant to sell the home they are in to purchase a different home at today’s much higher rates. We might wish Congress could do something about that in the short run, but it can’t.
Congress, however, is currently considering a measure called the More Homes on the Market Act, which could at least begin boosting inventory by making selling or buying an existing home more economical for current and future homeowners.
Back in 1997, Congress last adjusted the capital gains tax on the sale of owner-occupied homes. Single homeowners were granted a $250,000 capital gains exemption on a home sale, $500,000 for a couple. But while home prices have risen since then, the capital gains exemption has remained static for almost three decades. Simple fairness and common sense dictate that capital gains taxes should have been indexed to inflation all along.
For example, think of a retired Utah couple who bought their home decades ago, raised their family there, and are ready for something more suitable for them. Their family home may bring a good price in today’s market, but that doesn’t mean they are suddenly wealthy. Part of their equity is legitimate appreciation, but another part is pure price inflation. Why should they pay disproportionately higher taxes than a similar couple 30 years ago?
Had the 1997 exclusion simply been indexed to inflation, it would be roughly $520,000 for an individual and $1.04 million for a married couple today. The More Homes on the Market Act will essentially make that adjustment, improving the market for existing homes by fixing what should have been fixed in the first place — tying the capital gains tax on a home sale to inflation.
If Utah has an inventory problem, and if higher mortgage rates are a major reason that homeowners aren’t moving, why let an outdated, unfair federal tax provision make the problem worse? Congress may not be able to solve every part of our housing affordability problem, but this is one practical fix that seems obvious.
Utah has too few new, single-family homes available for sale. Building costs have climbed steadily, and according to the National Association of Home Builders, state and local regulations add over $130,000 to the cost of a new home.
We need to build more homes, more affordably, and Utah is working to do just that. But we also need to make it easier for the homes we already have to change hands — obsolete federal tax policy is making a challenging housing market even tougher.
At a time when higher mortgage rates are already discouraging homeowners from moving, federal tax policy shouldn’t create yet another reason not to sell. When that senior couple ultimately decides to stay put, the home they might have sold to a younger family never reaches the market.
Utah cannot afford to let a home shortage slow our growth. We need every tool available to keep our economy strong and make room for the next generation of Utah families.
Utah is working to do its part. Congress can do its part by passing the More Homes on the Market Act.