APOA | Colin Allen
Housing supply in the U.S. remains constrained as tight inventories and low vacancy rates persist. Home prices continue to appreciate but at a more moderate pace according to Federal Housing Finance Agency reporting which shows only a 1.8 % annual gain as of late 2025. Limited housing supply, especially at the entry level, plus on-going affordability issues continue to make homeownership a challenge for first-time buyers.
One underappreciated lever to unlock existing housing stock is reforming capital gains taxes on home sales. Current federal law allows homeowners to exclude up to $250,000 (single) or $500,000 (married, filing jointly) of gains, limits set in 1997 that haven’t kept pace with soaring prices. This has created a “stay-put penalty,” with a growing share of sellers facing taxable gains that deter moves—even when downsizing or relocating makes economic sense. Proposed legislation, such as the More Homes on the Market Act, would double exclusions to $500,000 (single) and $1,000,000 (married, filing jointly), providing an immediate, near-term step to help unlock housing supply and alleviate pressure on the overall U.S. housing market.
Recent studies commissioned by industry groups suggest that millions of households will exceed outdated capital gains thresholds in the coming decade, potentially suppressing turnover and reducing available listings. While legislation is one option, another way to modernize capital gains exclusions would be for the Trump Administration to index capital gains calculations to inflation – action designed to reduce tax friction, allow older homeowners to strengthen their retirement security by keeping more from their home sales, all while freeing up homes for younger buyers and move-up purchasers.
Housing supply constraints aren’t driven by tax policy alone. Meaningful capital gains reform should complement regulatory and zoning changes and provide tangential support to homebuilding and new construction. As debates unfold in Congress and among economists, lasting certainty in tax policy should be viewed as part of a broader strategy to unlock housing supply and improve affordability nationwide.