The U.S. housing market is in the midst of an inventory crisis. The number of homes for sale in the U.S. is hovering near record lows, caused by a pandemic-induced housing inventory death-spiral.

At the same time, home sales have soared close to record highs, suggesting the housing market suffers exclusively from a supply (and not demand) problem. Thus, federal policies must focus as much on increasing housing supply and as boosting demand.

Rolled out in isolation, first-time homebuyer tax incentives (FTHB) – such as the Biden Administration’s proposed $15,000 advanceable FTHB credit – are only likely to make housing inventory scarcer and prices higher. Instead of just bolstering demand, policies that focusing on increasing supply – such as tax incentives that encourage owners to sell and builders to build – is what the U.S. housing market desperately needs.

The federal government could quickly incentivize owners of existing homes to sell using one or a combination of carrot-based or stick-based approaches. Using a carrot-based approach, opening a temporary window of capital gains exemptions would incentivize owners of investment homes with capital gains, as well as owner-occupiers with over $250k-$500k in gains, to sell.

Alternatively, a stick-based approach might raise taxes on single-family rental income, implementing nation-wide rent control, and/or reducing bulk ownership of single-family homes. In our current political environment, though, it seems carrot-based approaches would be much more likely to garner bipartisan support than stick-based approaches, especially given the hardship that both renters and landlords have experienced during the pandemic.

Read the full post at HousingWire.

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