MAKING HOMES AFFORDABLE AGAIN

In 2026, Housing and Taxes is a local issue

Not too long ago, tax deductions for housing expenses like mortgage interest were intended to encourage home ownership. House payments might look higher than what a prospective homebuyer paid for monthly rent but that was BEFORE considering the tax benefits of writing off expenses like mortgage interest and property taxes. In 2016, 31% of federal personal taxpayers lowered their tax bill by itemizing their tax deductions, yielding a higher tax reduction than the standard deduction offered.

The Tax Cut and Jobs Act of 2017 changed motivators through nearly doubling the standard deduction amount. By 2022, only 10% of households found it worthwhile to take the time and effort to itemize; about two-thirds of these taxpayers report income above $500,000. Tax policy debate shifted to a SALT limit set on the amount of State/Local taxes that a federal taxpayer could deduct – and more recently, an increase in the $250,000 capital gain exempted from taxes when a home is sold. Since only deduction itemizers care about SALT and a $250k+ capital gain is unlikely for the average home, which sold this year for $521,700, both issues interest a small population of taxpayers. Arguments to show how federal policy can make housing more affordable broaden the debate to low-income housing incentives and grants, looser regulation of new construction, and mortgage rates.

Real estate related federal tax changes have little influence on how much typical American taxpayers send to Washington DC. They give more attention to what they pay to their state and local jurisdictions to cover costs for education and public health care, along with infrastructure like public roads and power lines plus a myriad of local services. This revenue is generated in various forms: income tax, property tax, sales tax, service and access fees. Homeowners pay most attention to the property tax bill sent to their address; following the market trends of 2021-2024 that pushed the average monthly mortgage payment from $1,400 to $1,800 (rounded), that tax bill has gotten noticeably higher in the past five years. State/Local government spending went up as more money came in:

A 50% increase in average property tax revenue was a major contributor to government budgets growing faster than in the past. Some of what property taxes often pay for, like good schools and well-maintained roads, correlate directly to neighborhood values. 

Almost half of State/Local spending goes to less precisely-defined programs, contained within names like Other and Health costs. If these costs are not shared by all residents, a heavy property tax burden may negatively affect property values.

Real estate appreciation has slowed below the inflation rate:

This represents small progress in the fight for housing affordability. To continue the fight. homeowners and aspiring homeowners must tell their local representatives to keep property tax increases off the budget list. Stagnant property assessments would prevent property taxation from eroding this affordability progress but run contrary to the challenges facing State/Local governments that struggle to balance budgets.

Note: The image above can be found in the realtor.com article cited in the last paragraph