Kamala Harris’ Housing Plan: A Bid For More Supply, Less Demand
The tight US housing market continues to be a major talking point for both Democrats and Republicans, particularly in the 2024 presidential election. Vice President Kamala Harris, the Democratic presidential candidate, has unveiled a comprehensive roadmap for addressing housing affordability, emphasizing a twofold approach: increasing supply and reining in demand. While her plan focuses on boosting housing units, some experts question its effectiveness and criticize its reliance on government spending.
Key Takeaways:
- Harris’ plan prioritizes increasing housing supply through tax incentives for builders of starter homes, a $40 billion innovation fund for local governments, and leveraging federal land for housing development.
- Critics argue that the focus on supply-side solutions may be ineffective and the plan’s emphasis on government spending could worsen affordability.
- The proposal faces significant bipartisan hurdles, particularly concerning the $25,000 down-payment assistance for first-time homebuyers, which some experts see as fueling housing demand without addressing the supply shortage.
The Supply-Side Push: A "Bipartisan Sweet Spot"?
Harris’s plan centers on boosting the housing stock, a strategy many experts consider the “bipartisan sweet spot” for tackling affordability. The rationale? For years, the U.S. has faced a shortage of new housing units, particularly affordable ones, due in part to the 2007-2010 foreclosure crisis. This deficiency has created a perpetually tight market that drives prices upwards and leaves many individuals and families struggling to find suitable housing.
"The bipartisan sweet spot around the housing affordability challenges that we have today is on increasing supply," says Dennis Shea, executive director of the Bipartisan Policy Center’s J. Ronald Terwilliger Center for Housing Policy.
Harris’s plan proposes a "first-ever tax incentive" for homebuilders who sell starter homes to first-time buyers. This incentive aims to boost the availability of entry-level homes, typically smaller and less expensive than traditional dwellings.
The tax credit would complement the Neighborhood Homes Investment Act, a pending bill in Congress, which has also gained bipartisan support. This legislation aims to bolster the creation and rehabilitation of starter homes within economically challenged communities.
Challenges in Defining "Starter Homes"
One challenge, however, is defining what constitutes a "starter home." James Tobin, CEO of the National Association of Home Builders, notes the complex interplay of factors that influence building costs:
"It’s hard to define what a starter home is," he says "because underlying costs make it hard to keep building expenses low. In most markets in the country, it’s hard to build to that first-time homebuyer because of labor costs, land costs, borrowing costs for a builder, and then material cost.”
Tobin underscores the need for a defined price range for starter homes, as the cost can vary significantly between different regions.
"In California, a starter home might cost [$700,000] or $800,000, but in the South … it might only be $250,000 or $300,000," he says.
The $40 Billion Innovation Fund: A Bold Bet?
Harris’s plan includes a $40 billion innovation fund to empower local governments to fund and implement their own solutions for housing development. While this seems like a significant step towards addressing local needs, some experts question its effectiveness.
Redfin’s Daryl Fairweather, a housing market expert, expresses skepticism about the federal government’s influence on local planning:
"The federal government doesn’t have a whole lot of authority over what happens at the local level," says Fairweather. "It’s up to the local planning commissions whether they’re going to allow for more housing in order to get that [innovation fund] money."
He adds that local communities and residents are often resistant to increased housing density, regardless of financial incentives.
Shea also cautions that the $40 billion price tag may be too steep to garner bipartisan support in Congress.
Down-Payment Assistance: A Controversial Demand-Side Approach
One of the most debated aspects of Harris’s plan is her proposal for $25,000 in down-payment assistance for first-time homebuyers. This initiative stems from a previous proposal by the Biden-Harris administration that called for limited down-payment assistance for first-generation homebuyers.
Harris’s plan expands this assistance to all first-time buyers, potentially reaching over 4 million applicants over four years.
Shea, however, points out that there is limited bipartisan support for this specific proposal. He highlights the concerns expressed by Senator Tim Scott, R-S.C., during an Aug. 16 appearance on Fox Business:
"Harris’s $25,000 down payment assistance “will only make the demand higher with the supply not moving, which means that prices will go up, fewer people are going to be able to afford it.”
Scott adds, "And frankly, unless they’re going to embed financial literacy in any program, it only means there will be a higher level of default."
Tackling the Renters’ Dilemma: A Legislative Push
For renters, Harris’s plan focuses on two key legislative proposals, both of which aim to curtail predatory practices within the rental market.
The first is the Stop Predatory Investing Act, a bill that seeks to eliminate tax benefits for those who own 50 or more single-family properties. This aims to limit the ability of large investment firms to acquire significant amounts of rental properties, a practice criticized for driving up rent prices.
The second proposal is the Preventing the Algorithmic Facilitation of Rental Housing Cartels Act, which targets the use of algorithms by companies to manipulate rental rates. This measure aims to prevent artificial price manipulation and maintain market fairness for renters.
A Balancing Act: Supply vs. Demand
Harris’s housing plan presents a complex approach to addressing the affordability crisis. While its focus on increasing supply is widely supported by experts, the extent to which the plan can effectively address the housing shortage remains to be seen.
The $40 billion innovation fund, coupled with the potential for increased federal land development, could provide vital resources for local housing initiatives. However, the down-payment assistance, while offering crucial support for first-time buyers, risks exacerbating the demand-supply imbalance and potentially driving prices upward.
Ultimately, Harris’s plan presents a bold vision for tackling the housing affordability crisis, but its success hinges on both its ability to deliver concrete solutions to the housing shortage and its ability to navigate the complex political landscape. Whether it can bridge the partisan divide and deliver lasting change for both renters and homeowners remains a crucial question for the 2024 election.