A historic state budget for housing
As he signed Indiana’s next biennial budget hours after it passed the General Assembly, Gov. Holcomb remarked, “(This) isn’t just your average, ordinary, typical, two-year budget…it is a generational impact budget.”
For current and future generations of Hoosier homeowners and homebuyers, we agree.
The state’s $44.5 billion spending plan includes historic levels of support for housing development, taking aim at a shortage of homes that has made homeownership less affordable while threatening cost of living, quality of life and economic growth.
Last year, the legislature created a Housing Task Force – including Realtors at the table – to study policy solutions for closing the housing gap. The impact of infrastructure as a barrier to new residential construction was a recurring topic, as the costs of building streets and sidewalks, wastewater and utility connections has risen much faster than consumer inflation.
House Bill 1005 tackled this issue by creating a state-backed revolving loan fund to help local governments invest in infrastructure and encourage new housing projects in their communities. The budget funded this residential infrastructure fund at $75 million over the next two years.
The loan fund is structured to include rural, urban and suburban areas alike, with priority given to localities that have analyzed their housing needs and enacted pro-growth zoning reforms. HB1005 also provided more flexible residential tax increment financing tools, an option for repaying these infrastructure loans from a growing property tax base.
The budget also includes $500 million to continue Regional Economic Acceleration and Development Initiative (READI) grants for communities working together to attract new workers and economic opportunities. After nearly 40% of the projects requested in the first round of grants focused on workforce housing needs, “READI 2.0” formalizes housing as a funding priority.
These appropriations headline the largest state-level investment in housing ever for Indiana. The new resources are desperately needed to help rebuild residential inventory.
The decline in available housing over the past decade is a fact of life for Indiana’s Realtors. In 2012, more than 45,000 homes were listed for sale across the state’s MLS marketplaces on an average day; today, that number has plummeted close to 8,000.
Existing homes sales across Indiana have rebounded from a challenging 2022 much faster than the U.S. – first quarter sales are roughly 12% behind the first three months of last year, compared to a national year-over-year deficit of 23%. But as homebuyers return to the market, they’re confronted by an inventory of homes for sale that continues to dwindle.
And with homebuilding activity remaining near a thirty-year low (on a per-household basis), we face a statewide deficit of 30,000 new housing units just to keep up with current economic and demographic trends.
This imbalance between supply and demand has driven home values up: Indiana’s median home price has increased roughly 45% in the past five years, putting homeownership out of reach for a growing number of Hoosiers. The share of home sales to first-time buyers fell to a forty-year low in 2022, with rising prices (and elevated mortgage rates) pushing them to the sidelines.
And in Indiana’s market-based property tax system, higher assessments and bills have followed this price trend.
The legislature passed temporary property tax relief this session to shield homeowners from taxes continuing to climb and added a cost-of-living adjustment to the homestead tax deduction for Hoosiers over 65. They also broadened the definition of ‘homestead’ to protect homeowners against taxation beyond the intent of Indiana’s constitutional property tax caps.
In the long run, however, solving the housing shortage is the only sustainable way to ease price appreciation, improve affordability and control future increases in assessments and tax bills.
Accessible housing options also help communities attract new residents and the economic opportunities that follow. Companies want to locate, expand and invest close to their customers and employees. Proximity to workforce the top-ranked factor in economic development decisions, as employers prioritize talent over tax breaks, highway access and other traditional barometers of business-friendliness.
In building a pro-housing budget plan, state legislators seized the opportunity to address Indiana’s housing shortage before it drags down our homeownership rate and damages our appeal to young talent. Lawmakers recognized that housing development, workforce development and economic development are connected – we can’t create quality of life without places to live.
On behalf of Indiana’s 21,000 Realtors, we appreciate the General Assembly and Governor Holcomb making generational investments in housing and passing a number of measures to protect homeowners and promote homeownership. Now, we’re eager to see the dollars allocated in Indiana’s new budget put to work expanding housing opportunities across Indiana.