President-elect Biden’s campaign proposal for a $15,000 first-time homebuyer tax credit would be a disaster for homeownership. History, however, shows us how we can increase homeownership fast.

Tax credits like those proposed by the Biden campaign would quickly drive up house prices and the median house price is already up 14% year-over-year, according to Redfin. The $8,000 first-time homebuyer tax credit back in 2008, for example, had a big impact on prices.

Now with house prices already skyrocketing, a first-time homebuyer tax credit would make things worse. After the program ends we’d end up with higher house prices, less consumer spending in the rest of the economy, slower economic growth, and greater economic inequality.

Fastest Homeownership Gain. History suggests a far more effective way to increase homeownership. Although the U.S. homeownership rate increased 20 percentage points from 1900 to 2000, it increased 10 percentage points in just one five-year period during the century. 

Can you guess when? No, it wasn’t right after World War II. The fastest increase in U.S. homeownership in the 20th century was DURING World War II! The homeownership rate increased 10 percentage points from 1940 to 1945 – from 43.6% to 53.2% – according to a paper by Daniel Fetter of Stanford.

How could that be! It certainly wasn’t because of new construction. New home construction crashed during the war. New single-family housing starts in 1944 were only 24% of the starts in 1940.

Income. The top reason for the increase in homeownership was increased income. The unemployment rate fell to 1% by 1944.

And real disposable personal income per capita increased 35% from 1940 to 1944.

Rationing. Another reason was wartime rationing. You couldn’t buy a lot of things so people were saving a lot of that increased income. Total personal savings increased 8-fold from 1940 to 1944! Many people had saved enough to make down payments on houses.

Rent Control. A third cause is even more surprising – rent control. Rents were controlled along with many other prices during the war. House sale prices, however, were not controlled.

Most landlords could not raise their rents but they all could sell their houses for whatever a buyer would pay. Many landlords chose to sell.

From 1940 to 1945, the landlord-owned rate fell 10 percentage points while the homeownership rate increased 10 percentage points.

What can we learn from this history?

1) To increase the homeownership rate we, by definition, must decrease the landlord-ownership rate.

2) We can increase homeownership by making it to the advantage of landlords to sell.

1st Proposal. Today, instead of a temporary $15,000 first-time homebuyer tax credit that drives up house prices, I’d propose a temporary tax break for landlords who choose to sell their single-family houses and condos to homeowners (owner-occupiers) in 2021. That would cost far less and cause a much larger increase in homeownership. 

I’d also propose that instead of a tax credit, that we reduce – for 2021 only – the “depreciation recapture” tax that landlords pay when they sell. 

Depreciation Deduction. Landlords get huge tax breaks. The U.S. tax code, for example, pretends the values of rental houses decline every year, as if houses were like cars and fell in value every year.

The code lets landlords deduct about 3% of what they paid for their houses from their incomes each year as a “depreciation deduction” on that imaginary decline in value. In real life, of course, houses appreciate, they don’t depreciate.


Here’s a good and quick explanation of the depreciation deduction I found on YouTube.


Since landlords pay less in annual taxes due to the depreciation deduction, they can pay more for houses which raises prices and lowers homeownership.

Depreciation Recapture & 1031 Exchange. The lower annual taxes landlords pay are supposed to get repaid by having landlords pay higher taxes when they sell their houses. This is called “depreciation recapture” but landlords never have to pay the depreciation recapture tax if they buy another investment property whenever they sell one! This one weird tax trick lets landlords put off paying those taxes forever. It’s called the “1031 Exchange.”

Lowers Homeownership 2 Ways. The current tax system encourages landlords to pay more but then discourages them from selling. Both raise house prices.

If we get rid of the depreciation deduction permanently, landlords will pay a bit more in annual taxes but they’ll also pay a lot less in taxes when they sell their rental houses. Landlords would bid up house prices less when they buy, and they would be more likely to sell. Both would raise homeownership. 

The Plan. A temporary tax break for landlord-owners when they sell to primary-homeowners in 2021 would quickly increase homeownership. We would, however, have to also permanently end the huge 1031 Exchange tax break to make it to the advantage of a landlord to sell a house without buying another house at the same time.

The temporary tax break would also help some landlords squeezed by the 2020 coronavirus eviction moratoriums.

Over the longer term, completely and permanently removing the depreciation deduction on single-family houses and condos would increase homeownership and help stabilize house prices, household wealth and families.

In addition, if we stop distorting the market by artificially pumping up house prices, more money will be spent in the real economy which will increase jobs and economic growth, and decrease economic inequality.

First Step. We wouldn’t see, of course, huge increases in homeownership like from 1940 to 1945, but we would quickly beat the tiny rates of increase we’ve seen over the last half century. Despite the umpteen programs we were told would increase homeownership, the U.S. homeownership rate only increased 3 percentage points from the 1960 census to the 2010 census – from 62% to 65%

1) The first step to increasing homeownership is to admit to ourselves that we’ve failed miserably since 1960 and we need to change.

2) A good second step would be to get rid of the landlord tax breaks that lower the homeownership rate.

Many other steps could be taken to increase the homeownership rate but a first-time homebuyer tax credit is absolutely not one of them.

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Note. For more information, here’s a YouTube video on the huge tax breaks we give commercial real estate investors and how a billionaire real estate investor can legally pay only $750 in federal income taxes.

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