As first-time and lower-income buyers are being squeezed out of bidding wars against cash-rich investors, the homestead exemption could help combat take over by Wall Street, columnist and investment professional Conor Sen argued in Bloomberg.
FHFA is attempting to address this issue by awarding a higher percentage of federal-backed mortgages to low-income households or for homes in minority communities.
But Sen suggested that goal, while admirable, might not actually lead to major change and suggested that relying on the homestead exemption might prove more fruitful. The homestead exemption is a legal exemption that can shield owners from property taxes, but only for people actually living in the home.
Sen argues that local governments can help homebuyers by increasing the amount shielded by the homestead exemption. They could then raise property taxes, which would only impact investment property owners, thus making homes in their communities less attractive to Wall Street investors.
Whether or not higher property taxes will deter investors is the question. Research from Harvard’s Center For Population and Development Studies analyzed rent prices combined with property taxes and found that rents rise to accommodate high taxes. The current lack of inventory is pushing some prospective buyers to rent while they search for a house, and prices are already rising.
Edward J. Pinto, Senior Fellow and Director of the American Enterprise Institute’s Housing Center, calls it “the paradox of accessible lending.” Until the supply of housing increases, easing credit will make entry-level homes less affordable. The key, Pinto argues, is to remove barriers to building more housing.
“It’s always been hard to find a home if you have limited income,” adds Jay Parsons, deputy chief economist for RealPage. “What’s crazy now is you can have a relatively high income and still have a hard time.”
If the trend continues, homestead exemption expansion may simply be another reason renters are forced to pay higher rents.