The news on the current housing crisis does not always explain the contribution of the retirement crisis. After the disappearance of the pension and the passing of ERISA[1], many homeowners are relying on their home’s appreciation to retire[2]. Considering this, many retirees are holding onto their homes longer, holding back supply that could make housing more affordable.
One solution is to make real estate more appealing for multigenerational use. Lockdowns during COVID-19 resulted in a shift towards prioritizing time with family and a rise in remote work, leading many baby boomers to build guesthouses for family members or remodel existing ones to add more hosting features. Additionally, some baby boomers are choosing to upsize[3], with the share of upsizers now only slightly smaller than the share of downsizers. Many are upsizing for guest rooms, moving closer to family, or to a coveted location people want to visit.
As older generations look to sell their homes, they face a dilemma. Even with the $250k to $500k exemption on primary homes, capital gains taxes owed upon selling end up being potentially prohibitive for owners. Instead, baby boomers are holding onto homes so that when their children inherit, the cost basis “steps up” and capital gains tax is eliminated.
There is another option: selling, using the cost basis to buy a new downsized home, and reinvesting the capital gain in a Qualified Opportunity Zone Fund. These funds allow investors to defer capital gains tax for five years and provide a 10% or 30% basis step-up, depending on the fund. This option would reduce the homeowner’s immediate tax liability, give them time to generate capital losses to cover, and provide a valuable real estate investment which can appreciate tax-free if held for ten years. With this added flexibility, homeowners can do their part to address the affordability crisis by adding supply to the market. We can help navigate this – give a call if you’d like to know more.
[1] https://www.dol.gov/general/topic/retirement/erisa
[2] https://www.nytimes.com/2026/07/14/opinion/housing-retirement-crisis.html
[3] https://www.wsj.com/economy/housing/baby-boomer-home-sales-real-estate-879614be?st=N4DZSS