Housing - A Set of Fresh New Ideas

Now that the election cycle is behind us and a new administration is taking shape, many Americans are eagerly anticipating action on pressing issues that impact their daily lives. Chief among these concerns is the ongoing housing affordability and housing shortage crisis. The problem has been widely debated and became a central topic in national policy discussions during the recent election. Both parties presented proposals—one side advocating for $25,000 in down payment assistance for first-time homebuyers, while the incoming administration has suggested opening Federal Lands for housing development. While others can evaluate the merits of these proposals, we aim to focus on new, innovative ideas.

What’s Happening, and How Do We Fix It?

Like most markets in a free enterprise system, the housing market operates on the principles of supply and demand. However, it is far more complex than a straightforward relationship between buyers and sellers. Several critical factors influence housing, including interest rates, labor availability, supply chain disruptions, land supply, regulatory constraints, migration trends, and demographic shifts. Additionally, the dynamics of existing home sales and new construction are currently diverging, with each segment facing its own distinct set of challenges.

The Covid-19 pandemic triggered significant disruptions in the supply chain, which contributed to the highest inflation levels in 40 years. In response, sharp interest rate hikes designed to combat inflation sidelined many prospective buyers while also discouraging sellers who had locked in historically low mortgage rates during the pandemic. Meanwhile, migration patterns have driven heightened demand in Sun Belt markets, including Texas, Florida, and the Carolinas. These economic pressures have caused severe imbalances, preventing the housing market from functioning effectively.

Over the next four years, sound policy will be essential in restoring a balanced, healthy housing market. Below are several ideas aimed at making the American Dream of homeownership attainable for all who seek it.

Incentivizing Existing Home Sales and Increasing Affordability for First Time Buyers

1. 2-year Moratorium on Capital Gains Taxes for Existing Home Sales- This program would be designed specifically to increase supply of available existing homes for sale by incentivizing the sale of large blocks of investment properties, much negative has been said about Wall Street Banks, Hedge Funds, and other large investors buying large portfolio swaths of home's with the intend to rent them, putting these parties in direct competition with young families trying to purchase their first home. There are plenty of opportunities for these investors in other markets, like commercial real estate, and this practice has not been good for young people in our Country. The median age for a first time home buyer in 2024 is now 38, according to a recent NAR report. This is up from 35 just last year. In the 1980's the typical first time home buyer was in their late 20's. A flood of new supply should put downward pressure on prices, helping these buyers get into their first home earlier. Short-term rentals have also become a popular real estate investment for Americans, this policy would also incentivize retail real estate investors to take their gains with tax liability, adding additional inventory to the market.
2. Reform the Amortization Schedule on a Typical 30-Year Fixed Mortgage- The typical 30-year mortgage is front-loaded with interest payments. A large move up or down in rates can either bring a lot of buyers to market or shut them out. Current interest rate levels have priced out first-time buyers from the housing market. How about a 40 Year Fixed Mortgage? This would have an immediate impact by bringing more qualified buyers to the market who were shut out by the recent interest rate hikes. The typical homeowner keeps a mortgage 7-10 years before either re-financing, selling the property, or paying off the mortgage in full. There would be little downside given that the majority of these 40-year mortgages would not go to full term. This incentive would also help existing homeowners who are locked in with a low rate, incentivizing them to upgrade to their next home.
3. Shared Equity Mortgages- We can look to our neighbors to the north in Canada for a program that has increased access to first-time buyers. Shared equity mortgages allow eligible buyers to reduce their monthly payments. They work by providing a shared equity portion, that does not require a monthly payment. The repayment of the shared equity portion comes at the sale of the property along with a portion of the property appreciation during the period of the loan. The shared equity portion is typically 20% of the total loan amount. This program has served well for parents who want to support their adult children in buying their first home. In the US we have a lot of parents assisting with down payments. This shared equity program is a better setup since essentially it is an investment that will provide a return once the property sells.

Increasing New Construction Supply and Support for Homebuilders

1. SBA Lot Development Loans for Subdivision Development: If a developer walk's into a local branch of most large commercial banks with a plan to buy land, and develop land into lots for new homes, currently most all of these banks will say "thanks but no thanks" . Most banks see this loan product as risky, and don't have loan program's supporting horizontal land development. The Small Business Administration (SBA) historically has stepped in to fill the void and supplement loan programs in riskier categories, such as new business financing, business acquisition financing, and surety bonding needs for higher risk borrowers/companies. The SBA could offer low-interest loans specifically for land developers working on residential subdivisions. Many smaller developers struggle to secure financing for horizontal development, which leads to a shortage of new lots ready for homebuilders. By providing SBA-backed loans, this program could help unlock a flood of new development, and significant amount of new housing supply.
2. Missing Middle Zoning in Urban America: One of the biggest barriers to housing affordability is restrictive zoning that limits density in urban and suburban areas. Encouraging municipalities to adopt zoning changes that allow for duplexes, triplexes, and small multifamily buildings in traditionally single-family neighborhoods could help increase housing supply without the need for large-scale developments. Incentivizing local governments to revise outdated zoning laws through federal grants could be a game-changer in urban housing markets.
3. H2-A Guest Worker Program for Construction Skilled Labor: A shortage of skilled labor has driven up construction costs, contributing to higher home prices. We can secure our border while at the same time increasing legal immigration for highly in demand skilled labor, such as masons, carpenters, roofers, and concrete workers. Expanding the H2-A guest worker program to include skilled construction laborers could help address this shortage. This program would allow for a legal, reliable source of labor while ensuring that wages remain competitive. Additionally, it would bring the majority of existing construction workers from out of the shadows, and could provide a pathway for these workers to gain merit-based permanent residency based on their contribution's.
4. Tier 1 Residential Development Zone Incentives: The Opportunity Zones program established under Tax Cuts and Jobs act of 2017 has been wildly successful in incentivizing investment and development in historically low income communities. Taking a page from that program and establishing "Tier 1 Residential Development Zones" in areas experiencing high population growth could provide developers with tax incentives and fast-track permitting for residential projects. Most municipalities in America have what's called a Unified Development Ordinance (UDO) establishing development rules for Future Land Use. The smaller towns that don't have a UDO will most likely at least have a Land Use Map. These existing maps could be used quickly as a basis to establish national residential development priority areas. These zones would target regions with strong job growth but insufficient housing supply, helping to align housing availability with economic opportunities.
5. Refocus Remaining Infrastructure Investment and Jobs Act Funds into Utilities Infrastructure: Many residential developments are stalled because of the high cost of extending utilities such as water and sewer. Municipalities are relying on the developer to extend the infrastructure and dollars are not there to build out the infrastructure to stay ahead of development. Refocusing a portion of the remaining Infrastructure Investment and Jobs Act funds toward utilities infrastructure in high-demand areas could unlock thousands of potential homes. When looking at the current allocation of those funds, we believe the incoming Department of Government Efficiency (DOGE) is going to find a lot of waste and abuse. The remaining funds can be re-appropriated towards infrastructure in Tier 1 Development Areas. This approach would not only increase housing supply but also create jobs and stimulate local economies.

Addressing the housing crisis requires a collaborative approach and fresh ideas that blend incentives for existing home sales with policies designed to stimulate new construction. Achieving meaningful progress will require thoughtful policy implementation and coordinated efforts among homebuilders, developers, and federal, state, and local governments. The incoming administration has a real opportunity to get this right by working closely with all stakeholders. Together we can create a housing market that functions more efficiently, ultimately making the American Dream of homeownership achievable once again for millions of Americans. Lets Make Housing Great Again!