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Can government actions improve housing affordability?

Several real estate brokers say there are ways local, state and the federal government can boost affordable homes through tax credits or incentives for first-time buyers, as well as for developers and builders.

High demand and lack of inventory are pushing housing prices out of the reach of first-time buyers throughout the country. At the same time, rising construction materials costs are making it more difficult for builders to build affordable homes.

For instance, Congress is now considering the First-Time Homebuyer Act, which offers a $15,000 tax credit for certain first-time homebuyers.  “As housing prices and demand continue to rise to historic levels, we need to do more to create opportunities for those who’ve been locked out of homeownership by creating incentives for first-time homebuyers,” says Rep. Earl Blumenauer (D-OR), who introduced the act in April with Rep. Jimmy Panetta (D-CA).

Tax credits to get buyers off the fence

Currently, there are many potential first-time buyers who would make the move “with a little assistance,” says Ed Forman, president, Watson Realty Corp. in Jacksonville, FL. “A decade ago, there were tax credits for these buyers, and the program was a great success.”

Robert Ransome, broker-owner with Ransome Realty Group in Richmond, VA, agrees.  “Thirteen years ago, tax credits helped many of my clients get off the fence and buy houses,” he says “Many still have those homes, which have significantly increased in value.  However, the biggest issue affecting pricing today is lack of inventory. We need to ramp up the supply of affordable homes.”

Incentives to developers and builders, not buyers

However, Steve Murray, senior advisor, RealTrends, is skeptical about new buyer incentive programs. “Demand is not the problem right now,” he says. “There are numerous low-downpayment programs from the U.S. Federal Housing Administration (FHA), and other entities offered to anyone who qualifies based on income.”

Instead, it may be more effective to offer carefully structured tax credits or incentives to developers and builders, reducing their costs to increase the supply of affordable homes.

Ransome says affordable housing tax credits to builders or developers would be helpful, provided they encourage new home production in the moderate price range. “Many family-owned builders get started with a few small and affordable houses per year,” he says. “But their next step is often to build larger, more expensive houses because the profit margins are greater. So any incentives would need to support small builders to stay in the affordable market.”

Government regulation puts pressure on pricing

An even bigger pressure on new home pricing is governmental regulation, says Forman. “We need to address that issue and offer tax incentives to developers,” he says. “We need to increase production in all price points, with a focus on affordable housing.”

A recent study by the National Association of Home Builders (NAHB) found that government regulations account for $93,870, or 23.8 percent of the current average sales price ($397,300) of a new single-family home.  “Policymakers need to take bold steps to reduce or eliminate unnecessary regulations that will help builders increase the production of quality, affordable housing to meet growing market demand,” says Chuck Fowke, a custom home builder in Tampa, FL, and NAHB chairman.

Meanwhile, the rising costs of lumber, steel and other materials are making it even more difficult to construct affordable homes. An April NAHB report found lumber prices have soared more than 250 percent since April 2020, adding $35,872 to the price of a typical new home.

As Ransome says, “Tax credits for buyers and builders would be great incentives. But until we can address the supply chain issues and lower the prices of materials, it will be extremely difficult to add to the nation’s supply of affordable housing.”

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