day one project

Redirect Federal Housing Tax Expenditures from “Gated” Cities to “Opportunity” Cities

02.20.24 | 4 min read | Text by Erik Hembre

House prices have surged over the past decade, doubling while general prices have only increased by a third.  Numerous municipalities help to fuel this housing cost rise by exercising an overly burdensome regulatory process. These restrictions impose severe costs on potential new residents and the national economy – with one estimate that local zoning laws reduced U.S. growth by 36 percent between 1964 and 2009. Preferential tax benefits for housing — including the mortgage interest and property tax deductions and the exclusion of capital gains on home sales – become especially valuable for landowners in restrictive housing markets where prices are high and new construction is low. 

To address this challenge, I propose removing housing-related tax expenditures in cities that excessively limit housing production and redirecting them to incentivize housing growth in nearby cities. 

The federal government is projected to spend $604 billion over the next five years in tax benefits for homeowners. Under this proposal, the federal government would remove housing tax benefits for all landowners in identified cities that refuse to build housing at a pace necessary to accommodate our growing nation. To maximize benefits from this policy, these tax savings would then be redirected toward residents and governments (through direct payments or tax credits) of cities that build enough new housing for future residents to migrate to these same metro areas. 


Specifically, this proposal would remove housing-related tax benefits for all housing units within “gated” cities and redirect those tax savings toward “opportunity” cities. 

Should this proposal be implemented, there are important considerations to keep in mind: 

This idea of merit originated from our Housing Ideas Challenge, in partnership with Learning Collider, National Zoning Atlas, and Cornell’s Legal Constructs Lab. Find additional ideas to address the housing shortage here.