It is undeniable that America is in a housing crisis. Chairman Eric Burlison of the Oversight and Government Reform Subcommittee on Economic Growth, Energy Policy, and Regulatory Affairs stated recently, “A young American can work full time, do everything right, and still have no realistic path to owning a home … because public policy has made ownership expensive and further out of reach than it has been in decades.”

This has to change, and thankfully, policymakers are willing to do something about it. The House Oversight and Government Reform Subcommittee on Economic Growth, Energy Policy, and Regulatory Affairs recently held a hearing on housing affordability. Aiming to hear what changes policy experts recommend, lawmakers gathered to develop solutions to the housing crisis in the United States. Speakers from the American Enterprise Institute, the National Association of Home Builders, Americans for Financial Reform, and our very own Patrice Onwuka from Independent Women gave crucial insight into what is making housing so unaffordable today.

Noting factors such as environmental regulations, too-low capital gains tax exemptions creating lock-in effects, minimum wage and labor requirements in construction, and heavy regulations, which lead to high housing prices, some commonsense solutions could really make a dent in these problems. 

One solution that could ease the housing supply strain is raising the capital gains tax exemption. Houses are one of the largest assets owned by the average American, and increased home values are great as families grow their investment portfolios. However, when seniors start to retire and want to downsize, selling this large asset is now a large tax burden. Currently, homeowners have some relief from the capital gains tax as they can exclude up to $250,000 for individuals and up to $500,000 for married couples filing jointly. However, these limits were set in 1997 when the average home price was around $154,000 and have not been indexed to inflation. 

This is where raising the limit or indexing it can provide major relief for Americans looking to move out of their long-term family home without facing the massive tax burden after selling it. This would affect nearly 29 million households, according to the National Association of Realtors. 

While house prices have increased significantly, it does not necessarily mean the real value of homes has gone up. Instead, the cost of living has risen, and the dollar value has decreased over time. Indexing the capital gain tax exemptions to inflation would avoid taxing phantom gains, or increases in selling price due to inflation, but not reflecting real capital gains.

Another excellent solution is reforming zoning and permitting laws surrounding accessory dwelling units. Accessory dwelling units (ADUs) are secondary living spaces on the same property as primary residences, such as casitas, converted garages, or in-law suites. Many states have land-use restrictions that highly discourage–and even ban—building ADUs, but nearly half of American homeowners would be willing to rent out extra space in their homes for income. Allowing homeowners to be innovative with the space they own would increase the real value of their home as well as increase rental options at a lower rental cost. 

If states want to build a more affordable housing supply, decreasing the regulations on current property would increase the supply and give homeowners a secondary income source. This is also a great option for seniors and women wanting to age in place. ADUs are often used by families with aging parents, and they allow seniors to be independent but close to caregivers.

However, many states have land-use restrictions, complex permitting processes, and zoning laws that place high barriers to this solution. States can reform these processes and regulations and learn from states that have implemented grant programs to encourage innovation from homeowners in this area. The federal government should reform its federal regulations and incentivize states and localities to relax their restrictions.  

Many other solutions have been presented to make housing more affordable, but it starts with recognizing that governments at all levels have played a strong role in making housing unaffordable in the first place. Through federal energy standards, state permitting laws, or local zoning restrictions, governments have made it difficult to increase the housing supply quickly enough to keep up with the growing demand. 

Bottom Line

Solutions are out there for making housing affordable, but Congress, state legislators, and local policymakers across the country need to get to work.