The U.S. housing crisis continues to worsen, dashing young Americans’ hopes of buying a home, but a new proposal touted by President Joe Biden may actually improve the situation, at least according to some experts. It is said that it will make things even worse.
US home prices are at their worst level in 40 years. according to Report from Redfin. Rising mortgage rates, dwindling housing inventory and soaring home prices are forcing more and more Americans to give up on their dreams of owning a home.
a Redfin Survey When surveying the proportion of homeowners and renters, 64.2% of respondents said they had negative feelings about the economy due to the lack of affordable housing. A majority (53%) say housing affordability will influence who they vote for in November, which will likely be negative for the incumbent president.
Biden acknowledged the housing crisis in his State of the Union address in March and claimed Democrats were working to “forever lower housing costs,” but one of his policy prescriptions could make the situation worse. is high.
“Housing prices will rise and mortgage payments will rise.”
Blaze Media spoke with real estate economist Ken Johnson to explain why the president’s plan will almost certainly lead to lower home prices, not higher prices.
The plan outlined by Biden would give first-time and repeat homebuyers a tax credit of $400 a month for two years to help pay their mortgages. The Biden administration estimates the program could help up to 3.5 million middle-class households.
“This is just funding a part of society that probably legitimately needs additional funding, but it allows them to go out and bid more. It’s just that the government It means injecting money into the economy,” Johnson said.
“So some buyers will be able to pay more, and as a result prices will rise very quickly. There will be inflation, and even in the face of high interest rates, there will be no inflation.” “It will be,” he added. “What’s going to happen is that home prices will go up and mortgage payments will go up.”
Johnson noted the argument that the subsidies target individual homebuyers, giving them an advantage over corporations and other businesses that buy single-family homes.
“The problem is that the majority of home buyers are already individuals. It’s going to be families, households,” he explained. “If you give everyone $400 to buy a car, the price of the car goes up by $400. It’s all inflation.”
others agree In this evaluation.
“In the best-case scenario, this tax credit gives builders enough confidence to continue building,” said Daniel Hale, chief economist at Realtor.com, according to SF Gate.
But, she added, “If supply is not stimulated, this tax credit could attract more buyers, prevent more homes from being put on the market, and increase home prices.”
Ed Pinto, co-director of the Housing Center at the American Enterprise Institute, added to his criticism.
“Over the years, governments have done a great job of stimulating demand, but have failed miserably in increasing supply,” Pinto said, according to SF Gate. This is especially true when there are.”
Johnson also pointed out that the proposal runs counter to the Fed’s attempts to force inflation higher at a time when the Fed is actively trying to limit increases in inflation above 2% while stabilizing the unemployment rate. did.
“We’ll get there eventually, but this won’t help and frankly would go against the Fed’s mission,” he added.
He went on to say that the Biden administration is hoping this bill won’t pass and just wants to make people believe that Democrats tried to do something to help the housing crisis.
“I don’t think this will pass,” Johnson said. “Campaign promises like this will never be fulfilled by either party. It’s really a coin toss between the two parties to see which side actually has a better housing record.”
Is there a solution to the housing crisis?
Johnson says the key to easing the housing crisis is simply creating more housing units.
“The most helpful thing is for the government to make it easier to build units for sale or rent. We just need to be able to build more units,” he explained.
Johnson said there are many obstacles to increasing housing, but efforts that have been successful in the past can serve as a guide today.
“We’ve solved these problems once before. In the decades after World War II, we used Fair Housing to fund mortgages on homes built to improved standards. “They invented the law and gave money to Fannie Mae and Freddie Mac,” he continued.
“You know how they say houses don’t get built like they used to? Well, that’s true, because all the old houses fell down!” Johnson joked.
He went on to explain that past federal programs have been successful in increasing housing stock, but that is nearly impossible to replicate under current conditions.
“If I could wave a magic wand, I think we would increase the number of big developers. Back in the day, before the last housing crisis, there were tens of thousands of builders across the country. They’re not there today, so we honestly don’t have the ability to be ready and produce large numbers and be competitive,” he continued.
He said the federal government should focus on easing regulations for developers and providing incentives for large-scale construction.
“Now, all of a sudden, there are tens of thousands of smaller builders. They can be more competitive and more responsive to the needs of the market. If we can make the homes look more like real homes, sure. “It allows for faster construction,” Johnson said.
“But you know, that’s just wishful thinking at this point,” he added. “There’s really nothing we can do in the short term right now other than encourage the construction of more real estate, whether it’s multifamily rentals or single-family homes. We just need more units.”
Prime Minister Johnson concluded that Biden’s housing plan was at best disingenuous and at worst counterproductive.
“This is just an inflationary proposal,” he said. “Both sides know that this is just a political promise that doesn’t really need to be fulfilled.”
Many expected the Fed to lower interest rates in 2024 as inflation slows, but mortgage rates remain high. Unless there is a silver bullet to alleviate the housing crisis right before the election, housing is likely to continue to be a thorn in Biden’s presidential campaign.
Blaze Media reached out to Biden’s economic adviser for comment but did not receive a response.
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