The US is in the midst of a years-long housing affordability crisis largely due to a significant shortage of housing supply. Estimates of the shortage suggest it’s at least 4-7 million homes. What can be done to address this shortage? If you ask Vice President Kamala Harris, the answer is apparently to stimulate housing demand with taxpayer money.
Fresh off her foray into socialist price controls for groceries, Harris released a housing plan to subsidize first time homebuyers to the tune of $25,000 each in government giveaways. It should come as no surprise that juicing demand for housing in the middle of a supply shortage is a terrible idea and would only make the problem worse, likely increasing prices by that amount. Studies have shown that stimulating the housing market with similar interventions leads to price increases and just pulls forward future sales into the present rather than increasing homeownership overall. If this plan sounds familiar to Arizonans, it’s because Governor Katie Hobbs has implemented a similarly ill-advised plan.
How bad of an idea is it to subsidize additional demand? In 2009, the left-of-center Brookings Institution advocated against extending or expanding a similar homebuyer credit. The credit in question was less than 1/3 the size of Harris’ proposal and was implemented during the Great Recession when the housing market had a supply glut and a shortage of demand—the opposite of the current market. Given the details relative to the current situation, Harris’ plan is even worse.
To be fair, though not the headliner of her plan, Harris did propose a series of policies aimed at improving supply, but the policies amount to federal subsidies for construction and billions of dollars in giveaways to states. The housing shortage—or any other problem, really—isn’t going to be solved by spending more federal dollars on distortionary subsidies, despite what so-called progressive policymakers may claim. Housing in particular is a poor fit, given that many of the biggest obstacles to new home construction, like zoning or land-use restrictions, are largely state and local concerns.
To the extent that the federal government can help alleviate the housing shortage, it can do so by getting out of the way, which will lower costs and spur construction. For single-family homes, nearly one quarter of the average home price is due to government regulations (federal, state and local), accounting for more than $93,000. For multi-family developments, government regulations are responsible for a whopping 40 percent of the cost.
Like other inflation induced by trillions in new federal spending, the cost of building materials has skyrocketed. As a result, building materials cost 40 percent more than they did pre-pandemic. Government-imposed tariffs on imported lumber also continue to make prices higher. To make matters worse, the Biden-Harris Administration just raised the taxes even higher by nearly doubling the rate. If Harris were actually serious about addressing the housing shortage, she could start by opposing this tax increase from her own administration.