Though it was changed to “pursuit of happiness” for our 250-year-old Declaration, John Locke’s original statement about “life, liberty, and property” is the founding sentiment of the American experiment. Indeed, the American dream has always been that normal people can own their own home. Property has always been the most reliable way for building inter-generational wealth.
However, that goal has become increasingly out of reach for the average American. Since the covid lockdowns, housing prices have gone up 40% while interest rates have about doubled. The problem doesn’t just effect home buyers though, for sellers – while high, unrealized valuations seem great – inept public policy means that more and more of the wealth that they have created is taken by the federal government. This means that homeowners require even higher prices to sell their homes – creating a vicious cycle that has pushed the dream of home ownership to a tomorrow that may never come.
The market distortions take what should be a mutual beneficial transaction – like all free market transactions – and makes it something that neither side is truly happy about.
The median age of first-time homebuyers is increasing, and is in fact now a record 40 years of age. That means that not only is the American dream being pushed further and further away, but – more importantly – that Lockian wealth creation is being pushed further and further down the road. At the same time home prices are rising faster than wages, which will push those numbers even higher.
While permitting reform could help create more supply, and getting the government debt in check would help bring interest rates down. The easiest quick solution is to merely index the tax law that hasn’t been updated since Bill Clinton was in office. Under current law – created in 1997 – homeowners can exclude $250,000, $500,000 if married, in capital gains from the sale of their home. The problem is that 30 years of inflation have slashed the value of the dollar about in half. As Ryan Ellis wrote in National Review, “A tax rule that once protected most sellers now exposes millions of them to a substantial bill, all from gains derived by inflation (itself caused by the Federal Reserve and a big-spending Congress).”
To address this issue Senators Cornyn (R-TX) and Michael Bennet (D-CO) introduced the “More Homes on the Market Act.” Their bill would increase the exclusion to $500,000 for single filers and $1 million for joint filers. This simple change would mean that homeowners would keep an additional $40 billion over the next decade – freeing up housing supply and stopping distorted home prices because of faulty tax law.
Senators Cornyn and Bennet aren’t alone though, 40 right-of-center organizations recently sent a letter to Capitol Hill asking to support this change as well. The letter states that, “That tax burden discourages home sales, tightens housing supply, and makes it harder for Millennial families to buy the family homes they need.” And, the President touted working on homeownership and affordability in his State of the Union Address.
What the politicians and the organizations that signed the letter all see is that the economics of homeownership are moving in the wrong direction. But, more importantly it doesn’t take a welfare state to solve the issue. In fact, the only solution that is needed is to get the government out of the way. Fixing the disincentives that government itself created to home selling, and prices will stabilize for home buyers as well as allowing home sellers to keep more of the wealth that they deserve.
While both buying and selling a house is currently a nightmare, it doesn’t take much to turn them both into the mutual beneficial dreams that they should be. After the tax situation is fixed, then Congress and President can work on permitting and getting government spending under control to help out not just this generation of homebuyers, but the next as well. Restoring the American people’s ability to own property seems like a great way to celebrate 250 years of our life and liberty.
