“Allysia Finley is correct, "institutional investors are a distraction from the real causes of high home prices -- government policies" ("Scott Bessent and Gavin Newsom Feud Over a Dumb Idea," Life Science, Jan. 26).
The market badly needs deregulation to unlock capital. Tax regulations have frozen large swaths of our existing housing stock. And state and local land use regulations lock millions of acres of land out of higher and better uses by making it illegal to build starter homes on smaller lots.
The president, Treasury Secretary Bessent and Congress should consider addressing these capital constraints, which are largely responsible for housing unaffordability.
To account for consumer inflation since 1997, Washington should double the current capital gains exclusion caps for housing sales for homeowners age 65 or older. Currently these caps are $250,000 for a single owner and $500,000 for a married couple of any age. Raising the cap for older owners would unlock an estimated 200,000 homes per year for buyers looking to move up in property quality from the roughly three million senior households above the current exclusions.
Congress should exempt from taxation rental income from newly rented spare rooms. This would unlock an estimated 320,000 rooms per year from the 32 million spare rooms in owner-occupied single-family homes.
Exempt, too, from capital gains taxation starter single-family rentals sold to an occupying tenant in good standing with at least 24 months on-time rental history. This would open the door to homeownership for an estimated 90,000 families per year from the six million tenants living in starter single-family rentals.
Congress should incentivize the building of more starter homes by offering states a small lot bounty program. This would create 200,000 more starter homes per year.
The government should tax profits from newly built, for-sale developments as a long-term capital gain, not income. This would change the tax code from favoring rentals to neutral relative to for-sale homes.
Legalize mortgage prepayment penalties. This is a straightforward way to lower upfront rates by 0.40% to 0.50% -- raising home ownership.
What housing markets need is for Washington to unlock capital through deregulation, thereby allowing markets to do what they do best -- create and support economic expansion and prosperity.
Ed Pinto
Senior fellow and co-director
AEI Housing Center
Washington” [1]
1. How Trump Could Really Fix Housing Market. Wall Street Journal, Eastern edition; New York, N.Y.. 29 Jan 2026: A14.
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