Kamala Harris housing plan most aggressive since postwar boom

Vice President Kamala Harris’s plan to boost the U.S. housing supply could represent the biggest push since the end of World War II, according to housing expert Jim Parrott and Mark Zandi, chief economist at Moody’s Analytics.

In a Washington Post op-ed on Wednesday, they attributed the housing affordability crisis to a lack of supply, estimating that the U.S. needs 3 million more homes, almost all in the bottom half of the market.

The Harris plan released earlier this month aims to boost the inventory of affordable housing by encouraging more construction, while also offering $25,000 in down payment assistance for first-time buyers.

Parrott, who is the co-owner of housing advisory firm Parrott Ryan Advisors and a former White House economic advisor, and Zandi pointed to the expansion of a tax break for developers known as the Low-Income Housing Tax Credit, which would increase affordable rental supply.

To add more affordable homes for purchase, the Harris plan would also allow builders to get a tax break on profits on homes that are built and sold to first-time buyers.

Yet another part of the plan would create a new tax credit for renovating homes that couldn’t be sold for a price high enough to recoup repair costs. That would bring into the market additional supply that would otherwise sit unused.

To overcome infrastructure shortfalls and any local political resistance, the Harris plan would provide more money for states and communities.

“Each of these moves would be meaningful on its own, but together they would amount to the most aggressive supply-side push since the national investment in housing that followed World War II,” Parrott and Zandi wrote.

That’s when the federal government provided assistance to veterans via the G.I. Bill, which included, among other things, favorable terms for buying a home. That spurred more demand and construction.

To be sure, the plan comes with a big price tag: $125 billion. It would have to be paid for with tax revenue or offset with spending cuts elsewhere, they noted. Otherwise, it would add to the federal budget deficit and help lift mortgage rates, making homes less affordable.

But the upfront costs of boosting supply are far outweighed by the long-term costs of allowing the housing crisis to worsen, they warned.

“Our lack of affordable housing will continue to depress savings, opportunity and growth in ways that will do long-term harm to the nation’s economy,” Parrott and Zandi said. “A thoughtful effort to address the problem now will ultimately lead to more growth and less cost.”

For his part, Donald Trump told Bloomberg that he would lower housing costs by easing environmental and permitting rules. But he also has suggested at campaign events that he would limit low-income housing developments in suburbs.

The Republican Party’s 2024 platform blames high housing costs on illegal immigrants and vows to deport them, which some housing experts have said would reduce the availability of construction workers and add to costs. The platform also promises a mix of demand- and supply-side measures.

“To help new home buyers, Republicans will reduce mortgage rates by slashing Inflation, open limited portions of Federal Lands to allow for new home construction, promote homeownership through Tax Incentives and support for first-time buyers, and cut unnecessary Regulations that raise housing costs,” it says.

mike194827 on August 25th, 2024 at 00:03 UTC »

We need the full control of Congress to do anything. These conservative supposedly “unbiased” judges striking down new regulations and rules each day will just roll over into her administration, so passing these new laws through Congress is the only real way to get some much needed change.

Mediocretes08 on August 24th, 2024 at 23:28 UTC »

“Good ol days” folks real quiet right now

anylastway on August 24th, 2024 at 23:19 UTC »

You know what, here is the op-ed:

Jim Parrott is co-owner of Parrott Ryan Advisors and a nonresident fellow at the Urban Institute. Mark Zandi is chief economist of Moody’s Analytics.

The cost of housing has rarely been higher or more painful for so many Americans. Since the pandemic hit, rents are up about 20 percent, forcing half of all renters to spend more than 30 percent of their monthly income on rent, the highest number on record. And with home prices up 50 percent and mortgage rates up almost 100 percent, the monthly payment for a median-priced house has more than doubled, from $1,000 to $2,250. A home that was affordable only a few years ago is well out of reach now.

The strain this is putting on families is doing significant damage to the economy. If not for the ever-increasing cost of housing, inflation would have returned to the Federal Reserve’s target almost a year ago, and it would have long since begun cutting interest rates. It’s a serious impediment to savings, making it difficult for many to cover everyday expenses, much less save for their kids’ college or a down payment on a home. And it constrains labor mobility, making the economy less resilient against shocks.

The cause of the rising cost of housing is not a mystery: We simply don’t have enough affordable homes for rent or for sale. We have enough homes at the top of the market — homes that wealthy families can afford. But we don’t have enough homes for sale that aspiring homeowners can afford, or enough to rent that working families can afford. We estimate that, all told, the nation is short approximately 3 million homes, almost entirely in the bottom half of the market.

Given this unmet demand, why haven’t developers built more of these homes? Because the numbers don’t add up. For a mix of reasons dating back to the financial crisis and worsened by the pandemic, the cost of land, labor and materials has risen to levels that make it all but impossible for most builders to make an adequate profit on affordable housing.

The solution is to change these economics.

This is at the heart of the housing proposal released last week by Vice President Kamala Harris, which lays out a set of tax breaks with which the numbers for building affordable housing would finally pencil out.

To incentivize building affordable rental housing, Harris would expand a tax break for developers known as the Low-Income Housing Tax Credit. LIHTC has been a critical source of financing for affordable rental housing for almost 40 years. While it is not perfect — not all of the subsidy goes into units that would not otherwise be built — it has broad political support, can be scaled up quickly and distributes the tax break equitably nationwide.

Harris also proposes creating a comparable tax break for builders to address the shortfall in affordable homes for purchase. Policymakers have largely ignored this shortfall, focusing instead on demand-side support for homeownership that alone would do little to help in a supply-constrained market such as the one we have today. Under the new proposal, home builders would get a tax break on profits made from homes built and sold to first-time home buyers. As with LITHC, this would increase the returns for builders and developers to focus on the lower-income side of the market.

Finally, Harris proposes a new tax credit for renovating homes that can’t be sold for enough to cover the cost of repairing them. This would help bring to the market homes long languishing in neighborhoods that have fallen into disrepair.

These three moves would provide enough incentive for developers to tackle the supply shortfall across much of the country. In some areas, however, lack of infrastructure or political ambivalence over the additional density needed would still stand in the way. Harris thus proposes significant funds for states and communities to overcome local hurdles to building more affordable housing, making it easier for communities to get behind the projects needed to make up the shortfall.

Each of these moves would be meaningful on its own, but together they would amount to the most aggressive supply-side push since the national investment in housing that followed World War II. As one would expect from an effort of this scale, it is not cheap. The supply-side measures in Harris’s proposal would cost an estimated $125 billion, a hefty tab that must be paid with spending cuts or taxes, since adding to the federal deficit would drive up mortgage rates and undermine the very housing affordability effort it’s paying for.

Any effort adequate to the scale of this challenge will be expensive, however, and pale in comparison to the long-term cost of letting the nation’s housing shortfall deepen. Our lack of affordable housing will continue to depress savings, opportunity and growth in ways that will do long-term harm to the nation’s economy. A thoughtful effort to address the problem now will ultimately lead to more growth and less cost.

For all the controversy Harris’s plan will likely generate in an election year, it is precisely the sort of effort needed, both in its scope and its design. Indeed, it is one that both sides of the aisle should eventually find appealing, as it marshals the resources of the private sector to tackle a public policy challenge that plagues red and blue states alike. By making it economical to build the housing we need, it would finally end the decade-long shortfall, easing rents and home prices and the daunting weight that these ever-rising costs are putting on the nation’s economy.