If they simply did not charge income tax on home sales we would have an army of solo developers and house flippers engaging in a flurry of small builds. There is still cheap land to be had where single family 1500sq ft homes can be built but developers can't do it because of the up front costs and taxes making such a thing impossible for them. Solo builders can do it...until they factor in the governments' cut. The margins too thin, risk too great. Eliminating income tax on home sales is dead simple, has no cost, and would enable a lot of one-off projects.

I am trying to build a two bedroom house in a small country township in Ohio. My upfront costs just to get county, state, and township approval are already at $15k with me doing all the work. No approval yet. The piece of land (1ac) I'm developing was held by various corporate builders for years until I bought it from another individual for $7k. This house is for myself but it could easily be built on speculation and sold but I would have to live in it for three years to avoid the $30k income tax on the sale. No way am I fighting through all this red tape and risk to hand over $30k in taxes. That $30k is another piece of land brought to shovel ready for another build...pissed away. Income taxes are a regression to solo builders that make each build a daunting risk. The government is not allowing profit on smaller single family homes...period.

Can’t you avoid the income tax by incorporating and rolling profit into the next project expenses in the same year? I don’t see any reason to distort the market by removing income tax on income.

Perhaps, that sounds like more expense and red tape. Another barrier/wall that demonstrates my point exactly. Just to build homes? The people with these skills can't use them because of all the administrative, tax, and obscure compliance munitia hamstringing the process. The market is already distorted to hell.

This might be totally true for Ohio. Most of the attention on the housing crunch is in cities where there is zero cheap land and the only development that should happen is high-density.