| The Lock-In Effect Double Whammy: Low Rates + Tax Burden |
| There’s an interesting dynamic playing out that’s impacting multiple corners of real estate. And self-storage is one of them. The Lock-In Effect Double Whammy: Low Rates + Tax Burden Across the country, millions of homeowners are experiencing a double lock-in effect: 1. Low mortgage rates they don’t want to give up. Many owners refinanced or bought during the ultra-low-rate era of 2020–2021. Trading in a 3% mortgage for today’s higher rates can feel impossible. 2. Potentially massive capital gains taxes. Home values have surged, but the capital gains exclusion hasn’t changed since 1997 ($250,000 for individuals, $500,000 for married couples). That means more ordinary homeowners face big tax bills if they sell, with retirees and long-time owners disproportionately affected. Many in this group hold substantial equity after decades of appreciation, but selling to downsize or relocate could trigger huge tax liabilities. Industry groups are sounding the alarm, too. According to The National Association of REALTORS® Executive Vice President and Chief Advocacy Officer Shannon McGahn, “this is no longer just a concern for higher-end properties… NAR’s research shows nearly 29 million homeowners (34% of current owners) already face potential capital gains taxes if they sell, and that number is expected to climb sharply over the next decade.” The result? Homeowners are effectively “frozen,” even when life circumstances would normally push them to move. Instead, they stay put, effectively removing a large share of potential inventory from the market. Will Congress intervene? Two proposals are on the table in Washington: – The No Tax on Home Sales Act, which was recently introduced, would eliminate federal capital gains tax on the sale of a primary residence altogether. – The bipartisan More Homes on the Market Act would raise the exclusion limits to better reflect today’s home values. The current proposal is to double to $500,000 for individuals and $1 million for couples filing jointly.Both bills target the tax side of the lock-in equation, aiming to free up homeowners who otherwise stay put. Why it Matters for Investors and Operators – Inventory Crunch: With fewer owners willing to sell, the supply of properties available to purchase stays tight, limiting both homebuyer movement and trickle-down investor deal flow. – Retiree Squeeze: Retirees hold a huge share of U.S. housing equity. When they’re discouraged from selling, large swaths of housing stock stay frozen. A tax fix could unlock this pipeline and create new opportunities for liquidity – some of which historically flows into passive investments like self-storage. – Market Ripple Effects: Lock-in slows not only transactions but the broader ecosystem around them: lending volume, brokerage activity, and demand for renovations or remodels. The sector has historically thrived on movement: new jobs, new homes, downsizing, relocations. But with people staying put, the predictable churn that filled storage units has slowed. Move-ins are softer. Short-term users are harder to find. Operators who expected turnover-driven demand are instead facing unusually long holding patterns, with fewer triggers for new tenants entering the system. As a self-storage operator, we’re keeping a watch on policy changes. If Congress intervenes, it could free up one half of the double lock-in — and that movement could bring more transitions, more moving households, and ultimately, more storage demand. |