The root of the housing crisis is a lack of adequate housing supply. There simply aren’t enough homes for people to buy. Between 1990 and 2008, Maryland built an average of 23,000 units per year. Since 2008, Maryland builders have produced less than 15,000 units annually, while our population grows by 40,000 every year. The end result is a worsening game of musical chairs where those seated are paid to stay in place while the number of players looking for a seat increases with every song.
Existing housing stock has proved to be insufficient to meet demand, as prospective homebuyers offered tens of thousands of dollars over asking price just to secure a piece of the American dream. And it’s about to get much worse. Years of historically low interest rates followed by current rates of over 7% have frozen existing housing stock as homeowners are reluctant to give up rates they locked in earlier this decade. Meanwhile, local zoning and land use policies prevented homebuilders from increasing housing supply while money and materials were cheap. Even if all such policies were loosened today, there would be no housing boom. We failed to build when the time was right and won’t build during an economic downturn.
The end result is that no one is selling, no one is building, and thousands of Marylanders are locked out of homeownership.
Approximately 38% of all Marylanders with a mortgage are paying under 4% interest. An additional 28% of homeowners live mortgage-free. The low rates of years past combined with today’s high rates have caused a housing freeze, as current homeowners stand pat and prospective buyers hope to wait out high rates. If and when these conditions change, the flood of built-up demand will spike prices across Maryland, making the 20% annual increases of the previous boom look moderate by comparison.
State and local governments could take action to prevent this looming crisis. Instead, they have exacerbated the housing freeze by protecting homeowners from the full cost of increased home values. Typically, increased home value means higher property tax. Instead, state and local lawmakers have given preferential treatment to longtime homeowners, preventing the young and financially insecure from even entering the market.
Despite increased demands on local governments to fund public education and infrastructure improvements, county lawmakers have chosen to forgo revenue with the adoption of property tax credits or exemptions that encourage homeowners to hold on to homes that are larger than what they need. The natural cycle of the housing market relies upon empty-nesters selling their homes to young families. This isn’t brought on by magnanimity as much as the cost of having “too much house,” which is experienced primarily in the way of property taxes. When local governments waive those costs, longtime homeowners lose their incentive to sell and further constrain housing supply.
The results are somewhat predictable: Homeownership is trending older and whiter than it was a decade ago. The homeownership rate for those 65 and over is 79.6%. Homeownership for those aged 35 years or younger is approximately 37.8%. This is down from a peak in the mid-2000s of nearly 45%. The National Association of Realtors has reported that the percentage of first-time homebuyers has decreased from 34% of the market to an all-time low of 26%.
As reported by the National Association of Realtors, the homeownership rate for Black Americans (43.4%) is lower than in 2010 (44.2%) and nearly 30 percentage points less than white Americans (72.1%). Of all the homes purchased last year, only 8% of homebuyers were Black; 88% were white. The homeownership gap between white and Black families is larger now than it was in 1960 at which time white homeownership was 65% and Black homeownership was 38%.
Property tax credits are not innocuous subsidies. They are just as much of a market constraint as zoning regulations that prevent the construction of new housing. In both instances, the result is the same — housing is more scarce and more expensive.
If Maryland wants to create opportunity for those currently boxed out of the housing market, it needs to stop paying people not to sell. State and local lawmakers need to recognize the effect these tax credits have, make them means-tested and time-limited, and stop subsidizing wealthy people. We all want to end the housing crisis; let’s stop making it worse.
Tom Coale (firstname.lastname@example.org) is a land use and zoning attorney in Ellicott City.