Housing is the sleeper issue of the 2024 campaign
Summary
Harris promises to double down on Biden policies that have made it more expensive to buy a home.Vice President Kamala Harris cast tie-breaking votes that ensured passage of the American Rescue Plan Act, the Inflation Reduction Act and the Biden budget. In doing so she unleashed a wave of inflationary spending hitting all Americans, but none harder than potential home buyers. To prove that nothing has been learned from that experience, the Harris campaign has proposed a housing agenda of more government cash and greater command-and-control. The economic harm will far exceed any benefit.
A house that cost $303,600 in January 2021 now costs $422,600. Mortgage rates that were 2.8% are now 6.5%. Home prices 40% higher have combined with mortgage financing costs up 125% to double new home buyers’ average monthly mortgage payment, to $2,671 from $1,247. This has pushed the housing and rental affordability indexes to 30-year lows, the inflationary consequence of shoving three years of federal spending into only two years. Housing is the sleeper issue of the 2024 election.
Instead of correcting these mistakes, Ms. Harris proposes to double down on the Biden plan to give first-time home buyers $25,000 in down-payment support along with a $10,000 tax credit. Other proposals include establishing new tax incentives to build starter homes, expanding the tax incentive for affordable rental housing, doubling to $40 billion subsidies for housing construction, and dedicating some federal land to affordable housing.
Doubling down on the Biden agenda raises two problems. First, in 2023, the federal deficit was $1.67 trillion, more than the $1.592 trillion value of all 4.09 million homes purchased at an average price of $389,300. Since 1989, the federal government has never borrowed annually more than the dollar total of sold homes except when housing sales and the economy both plunged in the subprime crisis and in three of the last four years.
What does that mean to home buyers? The combined growth in average home prices and 30-year mortgage rates equals lifetime payments of $961,560 versus $448,920. That’s $512,640 more on the average home since the start of the Biden-Harris administration. Will Ms. Harris ever mention this government gouging? For the fourth time in five years, government deficits in 2024 are projected to exceed total home sales by 16%.
Ms. Harris promises to reverse local housing restrictions that increase home-construction costs. In California, low-income housing costs twice as much when built with government assistance as when it’s built without it. The National Association of Home Builders estimates government regulation adds a total of $94,000, or 23.8%, to the cost of a house. The Biden-Harris energy, environment and labor mandates are driving these costs. In addition, the American Enterprise Institute’s Ed Pinto identifies federal cost drivers such as Davis-Bacon wage requirements, excessive safety regulations, tariffs on imported construction materials, and restrictions on logging on federal lands.
The Biden-Harris proposals would also cap annual rent increases on some private rental property at 5%. When this shrinks private housing supply, will a President Harris compensate with more government spending? Housing price controls would make America’s housing supply problems worse, as they have done in New York City and as oil price controls in the 1970s made the energy crisis worse.
The Biden administration would let Freddie Mac purchase second mortgages up to 80% of an original loan’s value to drive new home equity lending up to $2.3 trillion from $512 billion, according to Bank of America estimates. Yet at a 2015 Financial Services Committee hearing, House Democrats claimed that raiding of home equity by predatory lenders triggered the subprime mortgage crisis. To leverage these government-sponsored enterprises almost fourfold compared with the total marketplace without any regard to their inadequate capital levels is the very definition of risk.
The Federal Reserve could cut interest rates or home construction could rise. Either would help Ms. Harris this fall. Yet housing markets can’t recover if the Justice Department’s radical trustbusters interfere with the recent Realtors’ settlement. In August, home buyers gained new guarantees that their interests will always be aligned with their agents’ interests, but it may take a while for home buyers to realize that new power. Yet if the Justice Department compels home buyers to pay for simply “window shopping" or bans payments in the closing contract, it would deny the workings of the market and lock out numerous new home buyers. Years would go by before new rules could restore some normalcy.
Other Biden-Harris reforms, such as waiving mandatory title insurance, offer home buyers only microscopic savings. The administration’s resistance to GSE credit-risk transfers and preservation of traditional monoline mortgage insurers—many of which failed in the subprime crisis—adds to taxpayers’ risk while denying home buyers’ savings.
Having unleashed inflation in prices and then in assets, Ms. Harris would fix the damage of too much government by gouging home owners with even more government.
Mr. Solon is an adviser with U.S. Policy Metrics and a former assistant to Senate Republican Leader Mitch McConnell.
