Hey there,

Today, I want to discuss something that's top of mind for many people in Utah: housing affordability. As a realtor, I'm on the front lines, seeing the challenges people face when trying to find a place to call home that doesn't break the bank.

This week’s edition is not meant to be political, but informative on a couple realistic things that could be done on a macro scale to help address housing affordability. If that’s not of interest to you, feel free to skip this one. So, let's break it down.

Table of Contents

• Why is Housing So Expensive?

• What Can We Do to Ease the Pressure?

  • Boost the Housing Supply

  • Home Seller Incentives

  • Mortgage Rates

• Final Thoughts

Why is Housing So Expensive?

You might be wondering, "Why is it so tough to find an affordable home these days?" Well, it really comes down to a few key factors.

• Supply and Demand: Simply put, there aren't enough homes to go around. The U.S. is short 4 million homes, and that shortage drives up prices. This is by far the biggest factor. There’s plenty of demand for housing, and not enough supply.

• Rising Costs for Landlords: It's not just homebuyers feeling the pinch. Landlords are also facing increased costs, like insurance and property taxes, which can either be passed on to renters, or eat into any chance of profit.

• Regulatory Requirements: Believe it or not, regulations play a role in driving up the cost of new construction. We’ll touch on this a bit more below.

What Can We Do to Ease the Pressure?

Boost the Housing Supply

The most straightforward way to bring down prices is to build more homes. How do we do that?

• Streamline approvals: Cutting through the red tape and speeding up the approval process for new developments can make a huge difference. The National Association of Home Builders found in a recent study that regulations imposed by all levels of government account for 23.8% of the current average sales price of a new single-family home. Some of these regulations are necessary to ensure safety. But there’s still plenty that can be streamlined. This is currently one of Utah’s main priorities.

• Relax zoning laws: Allowing for higher-density housing, like apartments and townhomes, in urban areas can create more housing options. The biggest hurdle you run into with this is that each city has their own zoning laws.

• Incentivize affordable development: While government can’t realistically fix our housing shortage, they certainly can incentivize builders who can by subsidizing construction of affordable housing with tax credits. We’ve seen the government do this over the past several years with electric vehicles, while many would agree we have a bigger need for affordable housing.

A perfect example of a state that has meaningfully increased their supply in recent years is Texas. Texas has built more than 300,000 new homes since 2022 to address shortages. In fact, 15% of all new housing permits in 2024 came from Texas. Unsurprisingly, prices have come down as there are more options for buyers to choose from.

Home Seller Incentives

There are a couple other things we could do to help unlock housing supply/inventory.

• Allow the Transfer of Existing Mortgage Rates: There are all sorts of implications to this, and honestly very unlikely to happen. But simply put, allowing homeowners to transfer their existing low-interest mortgage rates to new properties would allow homeowners who feel tied down right now to afford the purchase on their next home. This would also unlock quite a bit of current housing inventory. The only issue is each of these home sellers would also become a buyer. So after the initial inventory shock, demand would likely follow.

• Reduce Capital Gains Taxes: Reduce capital gains taxes when selling a personal residence. There are many people who have owned their home for decades and do not want to sell their home because of a massive tax bill upon sale.

• Adjust Capital Gains Exclusion for Inflation: Currently, individuals are exempt from $250,000 of profit being taxed when selling their personal residence, with married couples being exempt from $500,000 of profit. This exclusion was put in place in 1997 when the median home price was only $146,000. If you adjusted this tax exclusion for inflation, homeowners could receive up to $1,000,000 of profit tax free when selling their personal residence. This could unlock more housing inventory as more people would be willing to sell their home knowing there wouldn’t be a huge tax bill.

Keep in mind, government incentives tend to provide short-term relief, but rarely fix the long-term issue of housing supply. In fact, some of these “solutions” could just put more demand on an already supply constrained market. The long-term solution is reducing as much friction as possible for builders to build more homes.

Mortgage Rates

Certainly mortgage rates play a huge role in affordability as well. To get mortgage rates lower, the 10-year treasury would need to fall. This could either happen by the Federal Reserve lowering interest rates, market expectations of inflation coming down, aor reduced government spending.

Final Thoughts

Tackling housing affordability is a complex challenge. It's about regulatory changes, financial incentives, and thinking outside the box when it comes to development. But ultimately, the government can’t completely fix housing affordability and is something we have very little control over. But, there are many things you can control, even in today’s market to set yourself up for success.

I'm here to help you navigate Utah’s housing market, whether you're a first-time buyer, a seasoned homeowner, or investing in real estate. If you have any questions, need advice, or want to explore your options, please don't hesitate to reach out!

Here to serve,