Key points:
- American housing market faces a fundamental breakdown.
- Trump’s “Big Beautiful Bill” increases SALT deduction cap to $40,000.
- Higher SALT deductibility fuels artificial demand and inflated prices.
The American housing market is broken. But instead of fixing what’s fundamentally wrong, our leaders keep recycling the same tired responses—subsidies, deductions, and tax breaks—that inflate demand without adding supply. The latest example? President Donald Trump’s so-called “Big Beautiful Bill,” which quadruples the state and local tax (SALT) deduction cap from $10,000 to $40,000.
Marketed as a win for homeowners, this provision will disproportionately benefit higher-income taxpayers in high-cost states like California, allowing them to deduct far more in property taxes. On paper, it sounds like relief. In practice, it’s a textbook case of pouring SALT into the affordability wound.
The reality is that increasing SALT deductibility is yet another housing subsidy designed to reinforce inflated home prices. It’s the latest in a long line of government interventions—from mortgage interest deductions to down payment assistance programs to the Federal Reserve’s manipulation of interest rates—that have fueled artificial demand without addressing the shortage of homes at prices middle-income Americans can afford.
These policies are often well-intentioned. Who wouldn’t want to help families achieve the dream of homeownership? But when we add demand-side stimulus in a supply-constrained market, the results are predictable: higher prices, fiercer competition, and a widening affordability gap. The biggest beneficiaries aren’t the aspiring first-time homebuyers. They’re the current owners and institutional investors who see their assets appreciate even further, thanks to taxpayer-backed incentives.
As Jonathan Lansner rightly points out, this decades-long pattern of government “support” for homeownership has warped the market. The result is a distorted housing economy that’s become dangerously dependent on continuous injections of subsidies, all while millions of families are locked out.
Look no further than the numbers. In the first quarter of 2025, the homeownership rate was 65%, the lowest since before the pandemic. After years of record-low interest rates and pandemic-era stimulus, we haven’t moved the needle. If that level of government intervention couldn’t lift ownership rates, it’s hard to see how more tax deductions will.
Meanwhile, middle-income families across the country are struggling to break into the market—even with strong incomes. Take Julia and Scott Whitnall, two public school teachers in California making a combined $140,000. After working summer camps for extra money, compromising on square footage, and enduring delays from their sellers, they finally purchased a modest $509,000 two-bedroom home in Ripon. They succeeded, but just barely—and their story is becoming increasingly rare.
A new study from the National Association of Realtors shows that households earning between $75,000 and $100,000—typical of teachers, nurses, and tradespeople—can now afford just 21% of homes for sale nationwide. In 2019, that figure was nearly 50%. In high-cost states like California, Hawaii, and Montana, it’s below 12%.
The disconnect between incomes and home prices has grown unsustainable. Even when wages rise—as they have for some public workers in places like Albuquerque or Detroit—housing costs are rising faster. Between 2019 and 2025, teacher pay has gone up an average of 24%, but home prices have soared 47%, according to the National Council on Teacher Quality. In many communities, teachers, nurses, and other essential workers are being priced out of the very places they serve.
Some states and localities are trying to help. School districts in Colorado have built housing for teachers. New Mexico passed a law raising teacher salaries across the board. These are smart moves. But they are stopgaps, not structural reforms.
If we’re serious about affordability, we need to stop throwing gasoline on the fire. It’s time to reduce—not expand—subsidies that inflate prices. That means revisiting the mortgage interest deduction, the capital gains exclusion on home sales, and yes, the new SALT provisions. We should stop subsidizing wealth accumulation through homeownership at the top, and start investing in supply at the bottom.
Affordable housing, ultimately, means lower prices. That can only happen if we increase the supply of modestly priced homes. The Realtor study estimates that the U.S. needs 416,000 more homes priced at $255,000 or less just to restore balance for middle-income buyers. But most new construction is aimed at the luxury market, where profits are higher and barriers are lower.
Why? Because the system incentivizes it. Local zoning codes restrict multifamily housing. Environmental review processes can be weaponized to block projects. Tax structures favor capital gains over affordable development. And NIMBY politics still dominate local decisions.
Even developers who want to build affordably are often forced to go through layers of bureaucracy to access tax credits, grants, or permitting waivers. Streamlining these systems and building by right in key areas would do more to bring down costs than any deduction or subsidy ever could.
Of course, a real affordability agenda means confronting an uncomfortable truth: falling home prices would hurt current owners, including many middle-class families who rely on home equity for financial security. But preserving high property values at all costs creates a zero-sum game, where the gains of one generation come at the expense of the next.
No politician wants to run on a platform that says, “Let’s bring down home prices.” But until someone does, we’ll remain stuck in a cycle of temporary fixes and deepening inequality.
What we need is a new vision of housing—one that values stability over speculation, homes over assets, and access over appreciation. We need to stop pretending that we can subsidize our way to affordability while leaving prices untouched. Because the hard truth is: we can’t.
Without bold action to reduce housing costs, build more units, and realign incentives, homeownership will slip further out of reach. And the American Dream—already eroding for millions—will become a relic of the past.
We say we want to fix affordability. But so far, we haven’t.
I actually agree with this (regarding the increase in the SALT deduction cap), from a societal point of view.
It is interesting that Trump is the one who created the lower cap in the first place. (The reason for his reversal on this issue has not been made clear.)
In any case, I haven’t noticed this issue being discussed in the media very much – despite the impact that it may have on relatively-expensive housing markets and/or states with high property taxes.
Time to buy a house, I guess – before they take it away again in a few years?
Of course, one of the reasons that Trump installed the $10K cap the first time was because he simultaneously increased the standard deduction. And the “Big Beautiful Bill” apparently increases it again (to $31,500 for married couples).
So it’s really only the total amount of itemized deductions (including property taxes) above the standard deduction that provides any incentive to itemize in the first place, as I recall.
So if your itemized deductions are $32,000 (but your standard deduction for a married couple is $31,500), the only benefit you receive from this bill is the ability to deduct an additional $500 from taxable income.
So perhaps not that big of a deal for middle class housing in the first place. Might not even provide ANY incentive regarding that.
https://www.investopedia.com/2025-tax-deduction-changes-big-beautiful-bill-11772959
The reason for Trump increasing the Salt deduction is simple. It’s what he needed to do to get the votes needed to pass the bill.
There you go again trying to reinvent the system when you correctly recognize the problem as a lack of supply. You don’t need to reinvent housing economics to fix affordability you simply need to add supply by removing barriers to construction. Maybe after you have done that if you still can’t meet demand you could create additional incentives to add even more supply. Locally the problem isn’t a willingness to build its the difficulty in breaking ground due to self imposed barriers to entry.
You are conflating “buying a house” with “having a place to live”.
Our government interferes in the housing market, in various ways. The reason for that often has to do with lobbying from the real estate industry.
Young people in particular would be better-off NOT buying a house. The reason being that buying a house ties one to a given area – even when it’s not in residents’ interests to do so. It ends up being way more important than the local job market opportunities.
The best way to lose money is to frequently buy and sell houses – unless you’re a real estate agent encouraging others to do so.
Of course, there is the capital gains exclusion ($500K per couple) which encourages moving to some degree, as does Proposition 19.
The capital gains exclusion does allow one to “start over” each time a new home is purchased. (I understand you can’t do so more than every 2 years, I think.) But even then, you’re better off just hanging onto a house forever due to agent fees (and all of the other costs associated with buying, selling, and moving).
Incentives could be created to encourage renting, rather than buying.
By the way, the real estate industry was heavily-involved in the last-minute Proposition 19 ballot measure, as I recall.
It is likely that many voters were tricked into voting for it, because they didn’t realize that it would result in a massive property tax increase for their own children, if those children hang onto the family home.
(This is less of an issue in Davis, since there’s an exemption for houses worth less than a certain amount – something like a million dollar valuation, adjusted each year for inflation.)
But the kids also have to subsequently live in it – it can’t be a rental or a vacation home. And I believe that’s true even for houses under the million dollar valuation.)
Proposition 19 appeared on the ballot at the same time as another proposition (which also would have curtailed Proposition 13 in regard to commercial properties). Proposition 19 passed, while the commercial measure did not.
Proposition 19 does, however, allow the current homeowners to transfer their low property taxes elsewhere in the state under certain circumstances. (That’s probably why it passed.)
In any case, the reason that the real estate industry apparently pushed this is because they believed that it would cause current homeowners to move more often, and would also result in children being forced to sell the family home.
The real estate industry is a lovely bunch. According to them, it’s always a good time to buy and sell. And it only costs you a “cup of coffee per day” (for the next 10,000 years).
In general, I guess I don’t have a very good view of the sales profession – whether it’s houses, cars, pharmaceuticals, etc. I almost never see what value they actually provide. Quite often, they’re not even that knowledgeable.