NAR Considers Federal Tax Policies to Alleviate Inventory Shortage

November 11, 2020

A National Association of REALTORS® committee is exploring ways to reduce tax burdens on home sellers and spur housing development—both of which could go a long to way toward reducing the country’s historic housing inventory shortage.

At its meeting Tuesday during the virtual annual 2020 REALTORS® Conference & Expo, NAR’s Federal Taxation Committee approved two motions. The first would allow NAR to support tax relief policies for owners who’ve lived in their homes so long that the gain on their sale would exceed the capital gains exclusion, essentially locking them into staying in a house that no longer suits their needs.

The issue isn’t confined to high-priced states, such as California, or to wealthy homeowners, Rosen Consulting’s David A. Bank told the group.

Because the exclusion hasn’t been indexed for inflation, locked-in households are expected to double from today’s 1.7 million by 2030 and triple by 2040, according to a report presented to the committee by Rosen Consulting.

Hundreds of thousands more homeowners are estimated to attain locked-in status in the next decade in states such as Florida, Minnesota, Nevada, North Carolina, and Texas, Bank said. Nearly 60% of affected households earn less than $100,000, and 46% earn less than $75,000.

When these homes are kept out of the marketplace, first-time and moderate-income buyers have limited ability to join the homeownership ranks or to trade up. Reducing locked-in homeowners’ tax liability would create greater housing choice, increase sales, and spur the economy, according to the report.

The second motion allows NAR to explore and support alternative federal tax policies to help generate more residential units. Among the ideas presented to the committee by PwC consultant Karl Russo are tax credits and a new kind of municipal bond. Such incentives could:

  • Reduce the cost of converting commercial properties to residential, which is particularly timely in the pandemic-fueled recession.
  • Encourage hiring and training of residential construction workers, who’ve been in short supply for a decade.
  • Encourage land donations or discounted land sales to housing authorities and charitable groups dedicated to providing affordable housing.
  • Allow states and municipalities to access federally subsidized financing for public projects if those local governments reduce zoning and other regulative roadblocks that slow residential development.

The recommendations now head to the Public Policy and Executive committees. If approved, they will be presented to NAR’s board of directors Nov. 13.