Joe Biden is admitting that nobody wants to sell their house—and he’s offering a measly incentive to fix it

At different stages of the pandemic, the housing scene morphed from a buyers’ market to a sellers’ market—and sometimes back again—with lightning speed. But as of about a year now, it’s not much of a market at all since the market went into a deep freeze with historically low levels of homes changing hands. Plus, mortgage rates hit their highest level for nearly 40 years and are set to stay “higher for longer.” That’s all led to what experts have called the “lock-in effect,” and it has resulted in gridlock for months on end. 

But President Joe Biden wants to get things moving. “I know the cost of housing is so important to you,” Biden said during his State of the Union address last week. “If inflation keeps coming down, mortgage rates will come down as well. But I’m not waiting.” And he’s taking action, but will it be enough?

The White House is proposing some relief for homeowners: a one-year $10,000 tax credit for middle-class, starter-home residents who feel locked in to their low mortgage rates to move to a bigger home. By White House estimates, this should open up 3 million starter homes for those desperately trying to break into the housing market. 

Along with the seller tax credit, Biden proposed a swath of housing-related programs including a first-generation down payment assistance program, housing voucher program expansion, and rental assistance for low-income households.

The White House spoke to Fortune after Biden’s address, with Deputy Treasury Secretary Adewale Adeyemo saying it bluntly: “We have a supply challenge in the economy. Since the financial crisis, we’ve built too little housing here in the United States.” 

He was echoing the remarks of Fed chair Jerome Powell himself, who had recently testified to Congress about the economy and concluded, “The housing market is in a very challenging situation right now.”

So will Biden’s proposals move the needle? 

Not everyone is convinced that the new seller-focused tax incentive proposal will have the desired effects of making housing attainable for lower-income families and younger generations. While $10,000 will be “nothing to sneeze at” for some families who will be forced to move this year regardless of home prices and mortgage rates, it likely won’t be enough to meaningfully move the needle on transaction activity, writes Bloomberg columnist Jonathan Levin.

“The so-called ‘mortgage lock-in’ effect for existing homeowners, who enjoy low and fixed monthly payments, is still far too powerful to undo given the size of the proposed incentive,” Levin wrote. 

How much does a starter home cost in the U.S.?

Housing affordability in the U.S. has gotten so bad that first-time buyers have to make 13% more than they did in 2022, according to a July 2023 Redfin report. That’s because a typical starter home in the U.S. now costs a record $243,000—which is a whopping 45% more than pre-pandemic starter home prices. 

Home prices like this have left first-time homebuyers “on a wild goose chase because in many parts of the country, there’s no such thing as a starter home anymore,” Sheharyar Bokhari, Redfin senior economist, said in the report. “The most affordable homes for sale are no longer affordable to people with lower budgets due to the combination of rising prices and rising rates.”

The lock-in effect, therefore, has disproportionately affected younger generations like millennials and Gen Zers who would typically be scooping up starter homes by this time in their life. Yet these generations are still the most housing-obsessed, according to a December 2023 Bank of America report that shows some 60% of Gen Z respondents, and nearly 60% of millennials, said they think homeownership is more important than it was during their parents’ generation.

While Biden’s tax credit proposal for sellers could have the same effect as a 1.5% mortgage rate reduction, it could actually irritate one of the other major issues facing the housing market today: low inventory levels. 

“This proposal would increase demand for starter homes, which are already in short supply, thereby driving up prices,” Edward J. Pinto, a senior fellow and codirector of right-wing think tank AEI’s Housing Center. “In addition, many of the 3.5 million beneficiaries would have been able to buy a home without the credit. However, since money is fungible, these families will have additional purchasing power to bid up the price of homes.”

What’s more is that the Biden tax credit could have the unintended consequence of opening up more small homes for baby boomers looking to downsize during the next few years, since the same starter homes that the household-forming fortysomethings want are also ideal for downsizing grandparents.

“There’s a big overlap between select baby boomers and select millennials,” Ali Wolf, chief economist at Zonda, a distributor of housing market data and consulting, previously told Fortune. “The key difference here is that the baby boomer will likely be able to tap home equity by selling their existing home, allowing them to perhaps make a more compelling offer on the home compared to the millennials, especially if the latter group are still renting.” In other words, baby boomers are more likely to win the housing market with more cash on hand.

Whether Biden’s housing tax credit for sellers is effective may end up being a moot point if it’s denied by Republican legislators—and it could be unlikely we’ll see meaningful change during an election year. 

“It remains unclear which of these policies are most likely to succeed in Congress in this hotly contested election year,” Nick Luettke, Moody’s Analytics associate economist, said in a statement. “Housing affordability has become a key issue for Americans spanning all demographics and political divides, and housing policy has mostly remained steady in recent congressional budgets.”

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