Both presidential candidates claim they could solve the problem of rising home prices that plagues millions of Americans. Unfortunately, neither candidate's proposals would increase the supply of affordable housing, and Vice President Kamala Harris' plan would make it even worse.
The average sales price of all homes sold in the United States was more than $412,000 at the end of July.Federal Reserve Bank of St. LouisThis represents an increase of $90,000, or about 28 percent, compared to the same period in 2019.
On the other hand, a 30-year fixed-rate mortgage:RemainingAfter dipping below 5% throughout the 2010s and below 3% during the pandemic, interest rates are now averaging 6.2%. Rising home prices and rising interest rates are pushing millions of would-be homebuyers out of the market.
Rising home prices nationwide and rising mortgage rates are both linked to rising inflation caused by the recent surge in federal spending and the expansionary monetary policy (i.e., increasing the money supply without a concomitant increase in economic growth) implemented by the Federal Reserve in response.
But the real causes of rising housing prices are state and local regulations that make it more difficult and expensive to build new housing: density limits, minimum lot sizes, development impact fees, minimum setbacks, building permit allocations and deferrals, parking requirements, urban growth boundaries, environmental restrictions. Combine these with a variety of other regulatory restrictions and you see the causes of rising prices and a declining housing supply.
States and cities on the East and West Coasts tend to have the strictest regulations and, as a result, the least affordable housing, say economists Joe Gyorko and Jacob Kimmel of the Wharton School of Economics at the University of Pennsylvania. Estimation How much of a hidden “zoning tax” adds to land prices in cities across the country: They find that zoning regulations increase home prices on average land by more than $1.6 million per acre in San Francisco, nearly $600,000 in New York City, $700,000 in Seattle, and $800,000 in Los Angeles.
Presidential candidates can promise all they want, but they can't change the reality that most of the regulations that limit housing supply are imposed at the state, county, and local levels. Unless the Supreme Court overturns its 1926 decision, Village of Euclid v. Ambler Real EstateThe law allows local governments to control zoning, and there is little the president can do to end it.
Harris' Plan It calls for building 3 million new “housing units,” taking on “corporate landlords” and offering first-time homebuyers $25,000 in down payment assistance.
Unfortunately, her proposals to address the root causes of high home prices by increasing the supply of housing – tax incentives and new federal funding – are unlikely to significantly increase housing supply because the President of the United States does not have the power to override state and local regulations that block homebuilding.
Harris' other two proposals would actually make skyrocketing home prices worse: Cracking down on corporate landlords would reduce the supply of rental housing and drive up rents. Offering $25,000 down payment assistance to certain buyers would lower home prices for lucky recipients but raise prices for everyone else. Subsidizing housing demand while supply is limited will only lead to higher home prices, not more housing.
Former President Donald TrumpPromisedIt would relax regulations that restrict housing supply and open up some federal lands for “highly lightly regulated” large-scale housing construction.
But like Harris, he cannot override state and local regulations that limit supply. Opening up federal lands may be a step in the right direction, but most federal lands are not in areas with the most housing shortages or affordability, so the policy's impact will be minimal.
The federal government can keep mortgage rates low and promote home affordability by controlling inflation and demonstrating fiscal discipline. Huge federal deficits financed by increased borrowing in recent years have had the opposite effect.
Unfortunately, neither side has shown any interest in such an approach.
Benjamin Powell is a senior fellow at the Independence Institute in Oakland, California, director of the Free Market Institute, and professor of economics at the Rawls School of Management at Texas Tech University. He “American Housing: Coming Out of the Crisis“
