Surprisingly, only one 1 in 5 Denver renters could qualify to buy a home given a 3% down-payment and the now average Denver home price. That’s a big change from 10 years ago when many renters leased before buying a home. But, Denver home prices have been escalating since 2011. For example, Denver home prices have skyrocketed a whopping 12% on average in last the last 12 months.Housing affordability is a real issue. Nationwide, the affordability for renters to buy is only slightly better. Just over 25% of renters nationwide could afford to qualify to purchase a home. Zillow released a full report on this this week.
Denver renters pay about $2,376 per month in rent. That’s about half of their median monthly income according to the Zillow data. Still, buying a home instead of renting is still the best financial decision.
“Legislation that reduces barriers to homeownership could allow millions of renter households to finally enjoy the stability and wealth-building owning a home can provide,” according to Alexandra Lee who compiled the report for Zillow.
Give Down-payments To First Time Home Buyers?
The new administration has proposed a $15,000 tax credit for first time home buyers that would provide most of the required down-payment so more first time homebuyers could a afford to become homeowners.
That would address the down-payment issue to some degree. But, the underlying issue is lack of inventory of homes for sale. You see, if more buyers start chasing this low housing inventory for sale in Denver, that will add to even more multiple offers. So, prices would likely increase even faster. In turn, that would price even more buyers out of the Denver real estate market.
So, in a funny way, the proposed subsidy to first time home buyers could backfire and cause less home affordability. So, what’s the answer?
Increase Supply to Increase Home Affordability
We desperately need need more home listings in this hot Denver market. If the government really wants to effect affordability, it should consider incentives for the supply side the the housing market.
Here’s one suggestion. How about the federal government announce a one year tax holiday for capital gains taxes on single unit residential properties. That’s right, Sellers of single unit rental properties would be exempt from capital gains taxes on their rentals. That would flood the market with lots of new listings of mostly low-priced homes and condos. The result would surely be lower prices especially for more affordable homes.
Other government approaches might be helpful also. But, if we let supply increase instead of demand, the laws of economics suggest that prices will fall. Wouldn’t lower home prices really increase affordability? I’d love to hear your thoughts in the comments below.