Policies to Unlock Housing Supply and Boost Affordability

Housing remains trapped in limited supply and elevated costs. Homeowners are reluctant to sell because moving would require replacing historically low mortgage rates with rates above 6%, which has persisted since 2022. This lock-in effect reduces inventory, with just over 50% of outstanding mortgages carrying rates at or below 4% as of late 2025. The typical homeowner would face nearly a $1,000 increase in monthly payments when selling and buying again at current prices and rates. Americans are staying in homes longer than at any point in decades, while the housing shortage has grown to over 4 million homes. The problem is especially strong among older homeowners with outright ownership or very low-rate mortgages. Capital gains taxes also deter mobility because the federal exemption of $250,000 for individuals and $500,000 for married couples has not been meaningfully updated despite large price gains.

"Mortgage rates have stayed above that threshold since 2022, fundamentally reshaping market behavior. As a result, the so-called lock-in effect continues to constrain inventory. As of late 2025, just over 50% of outstanding mortgages still carry rates at or below 4%, meaning millions of homeowners are financially disincentivized from moving. Even more striking, the typical homeowner would face nearly a $1,000 increase in monthly payments if they sold and purchased another home at current prices and rates."

"This dynamic has real consequences: Americans are now staying in their homes longer than at any point in decades, and housing supply remains structurally constrained. The U.S. housing shortage has grown to over 4 million homes, underscoring how far supply has fallen behind demand. This issue is particularly pronounced among older homeowners. A large share of Americans over 65 own their homes outright or carry very low-rate mortgages, making them especially sensitive to replacement costs."

"While many would consider downsizing, today's financing environment often makes doing so financially irrational. Thoughtful policy such as portable mortgage benefits, targeted tax incentives or federally backed transition financing could help unlock this segment of inventory. Beyond mortgage rates, capital gains taxes continue to deter mobility. The longstanding federal exemption $250,000 for individuals and $500,000 for married couples has not been meaningfully updated in decades, despite substantial home price appreciation."

Read at www.housingwire.com