With housing supply and affordability at critically low levels, and young voters worried about debt, inflation and housing costs, the candidates for president are making housing issues part of their campaigns.
Housing was second behind inflation and a high cost of living as the most important financial problem facing families, according to a May Gallup survey. And the National Association of Realtors reported last month that nearly 90% of major metro areas across the U.S. registered home price gains in the second quarter.
Recent polls suggest that 18% of voters have not decided who will get their vote. If you’re part of that undecided bloc, this primer on the candidates’ housing policies may aid your decision. Making housing affordable involves a lot of moving parts, and whoever is elected in November will have their work cut out for them.
Neither campaign has offered a lot of details on how they will accomplish what they say will bring down costs for homeowners and renters, but here’s a look at how the two candidates’ housing policies stack up, in alphabetical order by last name. Some of their proposals would need congressional involvement — that’s when the specifics will be ironed out — and approval to move forward.
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Where Housing in America Stands Today
Why is housing out of reach for many Americans today? Because there is a national housing shortage, estimated to be around 4.5 million, according to the real estate website Zillow. It’s a classic case of supply and demand. Fewer homes drives prices up. If there were more homes than customers, fewer bidding wars would happen, leading home prices to fall.
The median sales price for a house sold in the United States in July was $439,000, up 4.0% year over year, according to Redfin.
And prices keep going up. Shelter costs — related to rent and mortgage, homeowners insurance and such — are up 5.1% over the last year, according to the Bureau of Labor Statistics, almost twice what overall inflation has been in the last 12 months.
[Is it a Buyer’s or a Seller’s Market?]
Kamala Harris’ Proposed Housing Policies
Harris’ primary suggestions, outlined in August in an economic policy statement, so far include:
— $25,000 to go toward a first-time homebuyer’s down payment
— Removal of key tax benefits for investors who own 50 or more single-family properties
— A pledge to build 3 million new homes over 4 years
— A tax incentive for homebuilders to build more starter homes and rental properties
$25,000 for First-Time Buyers
First-time homebuyers often have trouble saving up for a down payment. If homeowners were given $25,000 to help pay for that down payment, it could help eliminate a barrier that often keeps people from moving into a house. The Harris plan calls for giving working families who have paid their rent on time for two years and are buying their first home up to $25,000 in down-payment assistance, with more generous support for first-generation homeowners.
Will it help homeowners or hurt them? It really depends on the specifics, says Patrick S. Duffy, U.S. News senior real estate economist. “The supply issues need to be addressed first, otherwise it will be inflationary,” Duffy says.
The tax credit may help homeowners get into a house — but only if more homes are being built. The down payment assistance would allow more people to afford a home, increasing demand, but if there’s not enough supply, the prices of houses could go up even more.
Andra Ghent, professor of finance at the University of Utah, believes this type of tax credit will make the affordability crisis worse.
“By inflating housing demand, it will raise home prices, particularly for the few moderate-sized homes that might serve as starter homes,” she says.
“Most of that money will benefit housing developers, not individual households,” Ghent adds. “The state of Utah tried this, and it has failed miserably.”
Keith Gaddie, a political science professor at Texas Christian University, thinks the idea has possibility, particularly if used with government-backed mortgage programs.
“The down payment proposal is intriguing, as it creates a basis for placing equity in hand as a guarantee for lenders,” says Gaddie, who before working at TCU was an associate dean of architecture at the University of Oklahoma and has done a lot of work on housing issues.
“This [proposal] would likely need to be tied to the use of VA or FHA financing, programs designed to increase private ownership,” Gaddie says.
Remove Key Tax Benefits for Major Investors
This aims to discourage potentially predatory investors from grabbing up and marking up affordable starter homes.
But not all investors are predatory, and Ghent thinks this plan, if enacted by Congress, could have negative ramifications.
“Harris’ vilification of housing investors is harmful for affordability,” Ghent says. “Build-for-rent investors, in particular, increase family-sized housing supply in neighborhoods with better schools such that they improve opportunities for kids.
“Like it or not, we need investors to want to invest in single-family rentals. More capital invested in single-family rentals means lower rents for families. Removing tax benefits for investors will increase rents.”
Build 3 Million New Homes Over 4 Years
The Harris proposal calls for building more single-family and rental homes to boost supply and meet demand, and to target barriers to building at state and local levels.
Whether that works or not depends on how it’s executed, Duffy says. But if it works and housing supply increases, that could help lower housing prices, he says.
Since 2010, about 1.1 million houses have been built each year, according to the U.S. Census Bureau, instead of the 1.6 million needed to keep pace with the number of people who would like to be homeowners. Duffy says that an extra three million homes over four years “would be a pretty big bump.”
The success of this additional inventory will depend on where these houses are built, he points out.
“You need buildable land, and then you’ve got to find the labor, and there’s the cost of goods to consider,” Duffy says. “If you have all of these builders competing for limited supplies, will that increase their costs?”
He says it likely will, especially if the builders are concentrating in the same area of the country.
Tax Incentives for Those Who Build Starter and Rental Homes
This proposal includes tax incentives for builders of starter homes and rental housing as well as a federal “innovation fund” to spur construction.
Gaddie calls this a surprising policy proposal that could help increase supply.
“The use of tax incentives to builders is remarkable coming from a Democrat,” Gaddie says, explaining that incentives to industry providers “are more a traditionally Republican policy tool.”
[Harris Touts $25K Down Payment Aid: What First-Time Homebuyers Can Do Now]
Donald Trump’s Proposed Housing Policies
Trump’s primary suggestions, outlined in his 2024 platform document, so far include:
— Reduce illegal immigration and ban mortgages for immigrants lacking permanent legal status. (Trump claimed the measure would help address housing affordability because a “flood” of people entering the country illegally are pushing up housing costs, but undocumented immigrants only make up a tiny portion of the mortgage market.)
— Open federal land for home construction.
— Eliminate costly regulations to help make homes less expensive to build.
— Encourage construction of houses on the “periphery of cities and suburban areas,” where land is the cheapest.
Reduce Illegal Immigration
The Trump campaign says illegal immigration has driven up the cost of housing as well as education and health care. The position is that an immigration crackdown would result in fewer people competing for homes and prices would presumably come down.
Maybe, Duffy says. “But there’s also the fact that a lot of immigrants work in housing,” Duffy says. “So if you deport enough immigrants, you could solve one issue and create another — a labor shortage.”
Ghent agrees that this isn’t likely to lead to cheaper housing. She acknowledges that if Trump were able to deport millions of illegal immigrants, it would reduce housing demand, but she agrees with Duffy that the construction labor force would be reduced, and so it wouldn’t necessarily make homes cheaper.
“It might, in fact, worsen housing affordability,” she says.
After all, fewer workers mean fewer homes are being built, and could force construction companies to increase wages to keep the people they employ, all of which would drive up prices.
Open Some Federal Land for Home Construction
This idea rests on an assumption that housing costs are often so high because land is scarce, driving up prices. If you have more land and builders can get to it inexpensively, home prices won’t be so high.
“This is an interesting idea,” Duffy says, “but it depends what lands we’re talking about and where. It could become a climate-change related issue. Would these areas be close to forests that can easily burn? Will there be enough of a water supply?”
Most of the federal lands — over 90% — are located in Western states, often in less populated areas.
“You have to be more specific about what land would be opened up,” says Duffy, who lives in California. Both candidates have suggested repurposing federal land for housing, but the specifics have not been made public yet.
Gaddie doesn’t see this as a practical strategy for bringing housing costs down.
“Land isn’t the issue,” he says, pointing out there’s not a lot of federal land that homeowners have been clamoring for. “Most federal lands are either military installations, federal buildings or vast tracts in the sparsely populated west,” Gaddie says.
Eliminate Costly Regulations
Making homes cheaper and faster to build would help improve housing supply. Even well-intentioned laws governing how homes are built can drive up the cost to build a home, which means it’s going to be more expensive to buy.
Gaddie approves. “Many of us who have worked in construction and design would agree that there are housing regulations that create needless cost,” he says.
Once again, the details are key. Duffy says a lot of regulations that slow down building homes are at the local or state level, not necessarily from the federal government. He also points out that regulations are there for a reason. He says you could deregulate so you’ve got builders constructing a cheaper home, but what is that means then the roof blows off?
Encourage Construction on the Periphery of Cities and Suburban Areas Where Land is the Cheapest
The Trump campaign has also said he would lower housing costs by encouraging construction of housing on the “periphery of cities and suburban areas” where land is cheapest. The idea is simple: Find cheap land for homes to be built on, and those homes could be sold at more affordable prices.
“That sounds workable,” Duffy says.
Duffy says that in his home state of California, you’ve got to think about the fact that a lot of these peripheries involve “prime fire country” and that a lot of commuters already travel a far distance from the city. But, at least in theory, encouraging urban sprawl might be an effective way to bring the price of homes down.
The Bottom Line on How the Next President Will Affect Housing
Whatever is done by whoever is in the White House, housing supply has to come up, says Anne York, professor of economics at Meredith College in Raleigh, North Carolina.
“Neither political party is able to go against the laws of supply and demand. If the goal is to increase the quantity of housing with lower housing prices, the only way for that to occur is if the supply of housing were to increase,” York says.
She says that anything that helps homeowners buy a house, without working on the supply of homes, will just make prices increase.
“If individual buyers who meet certain criteria get a housing subsidy or tax credit, the price of that house could be lower for their budget, but putting more buyers into the housing market will lead to higher prices for everyone,” York says.
Duffy also points out that what drives up the cost of homes isn’t supply and demand alone. Home insurance premiums are skyrocketing, and that needs to be solved, he says.
“Homeowners insurance can torpedo affordable housing,” he says.
Ghent offers another idea. “What I would love to see, which neither candidate has proposed, are fully forgivable loans for anyone to study a construction trade,” Ghent says. “It should be fully forgivable for anyone who works in the construction industry for five years.”
She adds, “Our construction labor force is aging, and it’s very hard to get young people into the industry. That’s driving up the cost of housing, and so I’d love to see the candidates propose some solutions to our labor force issues.”
Interest rates will also have an impact on supply, as rate-locked homeowners might enter the market if rates fall. U.S. presidents don’t have authority over interest rates, although they do have some influence.
One thing is for sure, whoever lives in the White House will exert influence over housing matters across the country.
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How the Next President Could Impact the Housing Market originally appeared on usnews.com
