President Joe Biden unveiled new housing affordability proposals ahead of his State of the Union address, but some experts argue they could make the situation worse by not addressing underlying supply problems.
In addition to calling for higher taxes on the wealthy and corporations, Biden spoke in his address about the need to make housing more affordable. Mortgage rates have soared, and home prices have increased in tandem, pushing home-buying out of reach for many families.
“I know the cost of housing is so important to you,” Biden said on Thursday night. “If inflation keeps coming down, mortgage rates will come down as well. But I’m not waiting.”
Among the proposals is providing a $5,000 tax credit for middle-class first-time homebuyers for two years, described as a form of mortgage relief.
Also, he pitched a $10,000 credit for those who sell their starter homes. The administration described that credit as a response to the decrease in supply because pandemic-era homebuyers aren’t putting their homes on the market because of the higher mortgage rates.
Some say, though, that the Biden plan would backfire by increasing demand, putting upward pressure on home prices.
“There’s very little on this that is actually going to fix the problem,” Mark Calabria, the former director of the Federal Housing Finance Agency, said about the Biden plan, adding that it could make the situation worse.
“These things are ultimately going to increase demand when fundamentally the problem is supply,” Calabria told the Washington Examiner. “Econ. 101. If you juice up demand, you’re not going [to] increase sales. You’re just going to increase prices. You’re not helping anybody.”
The country has been facing years of chronic housing undersupply, a problem that became even more pertinent in light of the rising mortgage rates. Economists estimate that the country is short between 2 million and 20 million houses, a supply-side problem that cannot be ameliorated by subsidizing demand.
Calabria, an adviser to the libertarian Cato Institute, said even things in the Biden proposal that seem like they would help supply, such as a tax credit for builders, would not do much to help. In that case, Calabria said the provision would simply allow builders to bid up more for developable land, which is a limited resource.
Another part of Biden’s housing plan is cracking down on “rent gouging” by “corporate landlords.” Calabria said that, too, could backfire. If the administration were to make things more expensive for landlords, he said, the country could end up with fewer landlords in the market, causing higher rents.
Still, Biden’s remarks succeeded in winning plaudits from some affordable housing advocates and some in the housing sector, although the reactions were mixed.
David Dworkin, the National Housing Conference’s president and CEO, praised Biden’s remarks. He said the U.S. is now staring down the barrel of the “worst housing affordability crisis in recent history.”
“This is the most consequential State of the Union address on housing in more than 50 years. President Biden’s call for Congress to tackle the urgent matter of housing affordability through tax credits, down payment assistance initiatives, and other measures is warranted and represents a crucial step in easing the burden of high rents and home prices.”
But Ed Pinto, senior fellow and co-director of the conservative American Enterprise Institute’s Housing Center, said in an analysis of Biden’s housing proposal that the plan does little in the way of addressing supply problems but rather would increase demand and create programs that promote house price and rent inflation.
“Over the years, the government has done a great job at juicing demand but has failed miserably at increasing supply,” Pinto said. “This is especially true when housing supply is as tight (a seller’s market) as it is today, particularly for starter homes. As economics 101 dictates, when demand exceeds supply, the result is inevitably higher prices.”
Calabria said that, at least at the federal level, spending cuts would be something to help — although that wouldn’t happen under Biden. Overall, inflation from spending under Biden has pushed up materials prices.
“If we’re seeing housing inflation in part driven by increased demand from stimulus, increased competition on materials prices — it’s never going to happen, but to me, the proposal would be — let’s put forward a proposal to cut spending to deal with those inflationary pressures,” Calabria said of his ideal world.
He said that during his time running the FHFA, they saw record increases in home ownership at the time that the FHFA was tightening and strengthening underwriting standards, not loosening them. In a situation in which supply is constrained, authorities should not drive up demand but rather ensure buyers are in sustainable situations with more responsible underwriting, Calabria said — the opposite, in his view, of what the Biden administration has been doing.
CLICK HERE TO READ MORE FROM THE WASHINGTON EXAMINER
Still, it is unlikely that Biden’s housing agenda gets any legislative movement during a politically charged election year, which has seen bipartisan proposals such as a child tax credit and business tax package face long odds.
“It really does not appear to be a plan geared toward solving the problem, and it very well may make it worse,” Calabria said of Biden’s housing proposal.
