Americans across the political spectrum can agree on this: Rent is expensive, and buying a home can feel nearly impossible.
America’s housing affordability crisis has a number of origins, but it largely stems from two key factors that you learned in Econ 101: supply and demand. The supply of homes on the market is extraordinarily low, as sellers hang onto their houses, waiting on the sidelines out of fear that historically high mortgage rates will make their next place to live too expensive. Demand exploded during the pandemic and it never slowed down, despite high prices and rates.
Although there are signs that the worst of the housing affordability nightmare may be over, the market remains tight. That’s why housing a top issue for voters in the 2024 presidential election.
Vice President Kamala Harris on Friday unveiled her plan to help make homes more affordable. Although analysts cheered some of her plans to assist buyers, some feared that parts of Harris’ plan may exacerbate the problems in the market.
The plan, which builds on proposals that President Joe Biden has already announced, promises:
- Up to $25,000 in down-payment support for first-time homebuyers.
- To provide a $10,000 tax credit for first-time homebuyers.
- Tax incentives for builders that build starter homes sold to first-time buyers.
- An expansion of a tax incentive for building affordable rental housing.
- A new $40 billion innovation fund to spur innovative housing construction.
- To repurpose some federal land for affordable housing.
- A ban on algorithm-driven price-setting tools for landlords to set rents.
- To remove tax benefits for investors who buy large numbers of single-family rental homes.
Adding more homes to the market through incentives would certainly help, multiple economists agreed. Adding housing to the market will increase inventory and should help drive prices down. But capping rent was met with skepticism.
“What I’ve seen is three parts substance and one part symbolism,” said Joe Brusuelas, principal and chief economist at RSM US,?“The substance is increasing or focusing on supply conditions via the financial channel. It’s a good, solid proposal that’s forward-looking and can actually be accomplished. The symbolism is more organized around price caps on rents.”
Capping rent increases at 5%, which is something that President Joe Biden proposed in July, is likely a position that will be popular with the public, Brusuelas said. However, renters already have disinflation working in their favor, he added.
The Consumer Price Index data for July, released Wednesday, that showed the “rent of shelter” index was up 5.1% annually, according to Bureau of Labor Statistics data. But rents have been falling lately — so much that landlords are adding sweeteners like free parking and free months of rent to try to attract new tenants. That means the price cap will be ineffective, Brusuelas said.
The rent caps are the “ugly” part of Harris’ plan, said Lanhee Chen, director of domestic policy studies at the Hoover Institute at Stanford University and a past CNN opinion contributor who worked on campaigns for Republicans, including Utah Senator Mitt Romney.
“What is effectively a federal rent-control measure … was a bad idea when President Biden proposed it a few weeks ago,” said Chen. “There also appears to be another giveaway to local governments disguised as an “innovation fund” without any apparent accountability for results.”
Chen also raised concern about down-payment support, which may sound attractive to buyers but could stimulate demand and drive housing costs higher.
Brusuelas agreed that the plans to help first-time homebuyers could strike a chord with Gen Z voters, but its overall effect on the market remains unclear.
But the “substance” of Harris’ plan is the far more critical proposal to add 3 million housing units, Brusuelas said. Long before the pandemic and the supply chain issues and rise in remote work rocketed the nation’s real estate industry, chronically low inventory served as a bottleneck and helped fuel higher prices and worsen affordability.
The proposal released Thursday from the Harris campaign “is the only proposal that I’ve seen that directly addresses the concerns around the supply of housing,” Brusuelas said. “There’s going to need to be a concerted effort on the part of the federal, state and local governments to increase supply, because we’re about 3 million homes short.”
Chen agreed that adding supply was the best part of Harris’ plan.
“There’s bipartisan support for repurposing federal lands for construction of affordable housing, and the concept of creating the right tax and economic incentives for builders to construct more new housing,” Chen said. “I have some concerns about how these incentives will be targeted but there’s no question that these ‘supply-side’ reforms are long overdue.”
Former President Donald Trump has also touted using federal land to help alleviate the housing shortage.
“We’re going to open up tracts?of federal land for housing construction,” he said in a news conference?Thursday. “We desperately need housing for people who can’t afford what’s going on now.”
In addition, the Republican National Committee?platform?says that the party will “promote homeownership with tax incentives and support for first-time buyers and cut unnecessary regulations that raise housing costs,” as well as “reduce mortgage rates by slashing inflation.”
Jeffrey Zabel, a Tufts University professor of economics, said he was cautiously optimistic about Harris’ plan. But he said making the promise a reality will be difficult.
“While this is a step in the right direction, let’s wait and see what they can actually implement,” Zabel said. “It is easy to make these proposals and another thing to actually implement them. And even if they can get this done, there is much more that needs to be done to bring housing supply back into equilibrium.”
