Unlock Your Home Equity: Why Ending Capital Gains on Home Sales Would Be a Game Changer for Retirees – Kiplinger

Report on U.S. Housing Market Challenges and Their Intersection with Sustainable Development Goals

Introduction: Housing Accessibility and its Link to SDG 11

The United States housing market currently presents significant challenges that impede progress toward Sustainable Development Goal 11 (Sustainable Cities and Communities), which aims to ensure access for all to adequate, safe, and affordable housing. A dual-pronged issue has emerged: low inventory and high mortgage rates create barriers for new homebuyers, while existing capital gains tax regulations disincentivize older homeowners from selling their properties. This “lock-in” effect creates market stagnation, impacting multiple facets of sustainable development.

Analysis of Capital Gains Tax as a Barrier to Sustainable Housing Turnover

The “Stay-Put Penalty” and its Economic Consequences

A primary obstacle is the federal capital gains tax exclusion on home sales, which has remained at $250,000 for single filers and $500,000 for joint filers since its establishment in 1997. The policy has not been indexed for inflation, failing to keep pace with significant home value appreciation. Had it been adjusted, the exclusion would now be approximately $660,000 for individuals and $1.32 million for couples.

This outdated regulation creates a substantial financial penalty for long-term homeowners, particularly retirees and pre-retirees, who wish to sell. The National Association of Realtors (NAR) identifies this as a “stay-put penalty” that freezes housing market mobility.

• In 2025, it is projected that nearly 29 million households, or one-third of all homeowners, will possess home equity exceeding the federal capital gains tax exclusion for single filers.
• By 2030, this figure is expected to increase to 56% of homeowners.

Geographic Disparities and SDG 10: Reduced Inequalities

The impact of this tax policy is not uniform across the nation, exacerbating regional inequalities in direct opposition to SDG 10. The problem is most acute in states with a high cost of living and significant property value appreciation over the past decades.

1. States with the highest percentage of single filers exceeding the $250,000 exclusion: Hawaii (79.1%), Washington (64.8%), California (62.6%), and Massachusetts (62.3%).
2. Areas with the highest percentage of married filers exceeding the $500,000 exclusion: Hawaii (46.0%), California (30.8%), Washington D.C. (25.4%), and Washington (24.7%).

This situation creates a wealth trap, where assets are illiquid and cannot be leveraged to improve quality of life, disproportionately affecting residents of high-cost areas.

Proposed Policy Reform and Alignment with Sustainable Development Goals

Unlocking Equity to Advance SDG 1 and SDG 3

A proposed elimination of capital gains taxes on home sales could unlock significant equity for older homeowners, directly supporting SDG 1 (No Poverty) and SDG 3 (Good Health and Well-being). By removing the tax disincentive, older adults would gain the flexibility to leverage their primary asset, leading to improved financial security and health outcomes.

Potential Benefits for Older Populations:

• Downsizing and Efficient Resource Use: Facilitates moves to smaller, more manageable homes, reducing living expenses and aligning with the principles of sustainable consumption within communities (SDG 11).
• Improved Access to Healthcare: Enables relocation to be closer to family or specialized medical facilities, a key component of well-being for aging populations (SDG 3).
• Enhanced Financial Security: Frees up capital to fund retirement, cover long-term care costs, and prevent poverty in later life (SDG 1).

Stimulating Housing Supply to Achieve SDG 11

Eliminating the capital gains tax could serve as a catalyst for increasing the housing supply, a critical step toward achieving SDG 11. By encouraging older homeowners to sell larger, long-held properties, the policy would inject much-needed inventory into a strained market.

While the inventory of homes for sale has seen a year-over-year increase, it remains 12.9% below pre-pandemic levels. An influx of properties would help alleviate this shortage, potentially easing affordability pressures for younger generations and first-time buyers and creating more inclusive and sustainable communities.

As noted by Shannon McGahn of the NAR, the current stagnation “is rippling through the entire market, driving up costs and limiting opportunity,” which runs counter to the objectives of fostering sustainable and equitable economic growth (SDG 8).

Analysis of SDGs, Targets, and Indicators

1. Which SDGs are addressed or connected to the issues highlighted in the article?

• SDG 11: Sustainable Cities and Communities

  The article’s central theme is the housing market, focusing on issues like low housing inventory, affordability for new buyers, and the mobility of homeowners. These topics are directly related to ensuring access to adequate and affordable housing, a key component of creating sustainable communities.

• SDG 1: No Poverty

  The article discusses the financial security of older homeowners (retirees and pre-retirees). It explains how the capital gains tax on home sales acts as a barrier, preventing them from accessing their home equity to “fund retirement or health care costs” and “improve financial security.” This connects to preventing poverty and ensuring economic resilience among the vulnerable, particularly the elderly.

• SDG 3: Good Health and Well-being

  The text explicitly states that eliminating the tax would allow seniors to “relocate closer to family or better medical care” and “fund… long-term care, or other medical needs in retirement.” This directly links the housing policy issue to the ability of an aging population to access healthcare and maintain their well-being.

• SDG 10: Reduced Inequalities

  The article highlights how the current tax policy creates a “stay-put penalty” that disproportionately affects older homeowners. This creates an intergenerational inequality by limiting housing supply for “younger generations and first-time buyers.” The problem is also shown to be more severe in certain high-cost states, pointing to geographic inequality.

2. What specific targets under those SDGs can be identified based on the article’s content?

1. Target 11.1: By 2030, ensure access for all to adequate, safe and affordable housing and basic services.

   The article directly addresses this target by discussing the challenges of the current housing market, such as “low inventory and high mortgage rates,” which make it “harder to get on the property ladder.” It suggests that changing the tax policy could “increase the supply of houses on the market” and “make homes more affordable for younger generations.”

2. Target 1.4: By 2030, ensure that all men and women, in particular the poor and the vulnerable, have equal rights to economic resources, as well as access to… ownership and control over… property.

   This target is relevant because the article describes how older homeowners are “locked into their current homes” and cannot access the “impressive equity they have built up.” The capital gains tax is a disincentive that limits their control over their primary economic asset, their home.

3. Target 3.8: Achieve universal health coverage, including financial risk protection, access to quality essential health-care services…

   The article connects the tax issue to health by noting that unlocking home equity would allow seniors to “fund… health care costs” and “relocate closer to… better medical care.” This addresses the financial risk protection aspect of healthcare, ensuring people can afford the care they need.

4. Target 10.2: By 2030, empower and promote the social, economic and political inclusion of all, irrespective of age…

   The article’s focus on the “stay-put penalty” for older homeowners illustrates a barrier to their economic inclusion and mobility. The policy limits their choices to downsize or relocate, effectively penalizing them based on their age and length of homeownership, which in turn affects the housing opportunities available to younger people.

3. Are there any indicators mentioned or implied in the article that can be used to measure progress towards the identified targets?

• Housing Supply Indicator: The article provides a direct metric for housing supply, stating that “the inventory of homes for sale… remains 12.9% below pre-pandemic levels.” This can be used to track progress toward increasing housing availability under Target 11.1.
• Indicator of Policy Impact on Homeowners: The article uses specific data to measure the scale of the problem, which serves as an indicator for Targets 1.4 and 10.2. It mentions that “1 in 3 homeowners — nearly 29 million households — have built up more home equity than the federal capital gains tax exclusion” and projects this will rise to “56% of homeowners” by 2030.
• Geographic and Demographic Indicators: The table within the article provides state-level data, such as “Hawaii: 79.10% (% Homeowners w/ equity exceeding the 250k exclusion)” and “California: 30.8% (% Homeowners w/ equity exceeding the 500k exclusion).” These percentages are specific, measurable indicators that show the unequal impact of the policy based on location and filing status (a proxy for marital status).
• Housing Affordability Indicators: While not providing a specific number, the article implies affordability indicators by mentioning “high mortgage rates” and the existence of “the most expensive cities to live in the U.S.” as significant challenges.

4. Summary Table of SDGs, Targets, and Indicators

Source: kiplinger.com