Post pandemic, federal and state governments must provide additional protections and incentives to American citizens to buy primary residences. In doing so, retirement savings and investment in primary residence must be promoted simultaneously and economically interchangeably.
1. Restrictions on Foreign Home Ownership -– Since there is a real shortage of affordable homes in the US, foreigners must not be allowed to penetrate that segment of the housing market. Ideally, foreigners should be allowed to compete for the expensive-to-upscale homes only. Of course, that sector varies from market to market, so each state should regulate the price level and the corresponding inventory. Upon approval, the MLS and other sales agencies should allow the listing of those homes, clearly specifying "Open for Foreign Buying." Again, while the foreign buyers should be allowed to buy American homes, they must be prevented from competing for the inventory that the middle-class Americans demand. Since credit reports may not be available for them, a meaningful vetting process must also be established.
2. Penalty and Tax-free use of Retirement Funds -- One of the primary obstacles to homeownership for the younger generation has always been the access to the required down payments and closing costs, which the primary mortgages do not finance. To incentivize the younger generation into buying primary residences, they should be allowed to use funds from their IRA, 401(K), Pension and Deferred Compensation plans totally penalty-and tax-free to finance down payments and closing costs, which will simultaneously incentivize retirement savings and homeownership. Since most 401(K)s also come with some employer matching, the required down payment accumulation will be further accentuated.
3. Introduce Million-dollar Home Sales Surtax -– Since the upscale and expensive homeowners would be a big beneficiary of the phase-out (followed by no property taxes), the million-dollar home sales must be subjected to additional progressive surtaxes. It must not be a one-size-fits-all blanket rate; instead, it must be progressive given the savings – for example, sale price $1M to $2M @2.00%, $2M to $3M @2.25%, $3M to $5M @2.50%, $5M to $10M @2.75%, $10M+ @3.00%, etc., etc. While eliminating property taxes will make the high-end housing market more liquid, the introduction of sales surtax (coupled with higher short-holding transfer taxes) will gradually de-incentivize gamers, stabilizing this volatile segment.
4. Higher Transfer Taxes for Gamers and Flippers -– At the point of sale, shorter holding periods (say, up to 2 years) must carry much higher transfer taxes, so the traders and flippers are separated from the homeowners. It's a clear moral hazard case when primary homeowners and gamers are treated alike by the local assessors. While gamers are entitled to compete and buy, they must be treated as investors if they sell within the shorter window. Of course, certain consumer exceptions (e.g., job-related relocation, medical emergency, etc.) must be factored in as long as the use of home as primary residence could be proven.
5. Higher Sales and Transfer Taxes on Income-producing SFRs –- In terms of sales and transfer taxes, single-family homes occupied as primary residences must be treated differently from investor purchases for conversion to rentals. At the point of sale, those investors must pay higher sales taxes (add-on sales surtax). During the last recession, many institutions bought and converted millions of single-family homes into rentals creating a whole new "SFR Rental" industry. Unlike people's primary residences, these are income-producing properties and must be treated as such. Even during the years of property tax phase-out, they must be treated as a sub-class of the multi-family and must pay higher sales, property, and transfer taxes than the primary residences.
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