Vice President Kamala Harris Unveils Ambitious Plan to Tackle America’s Housing Affordability Crisis

Americans, regardless of their political beliefs, are united in acknowledging that rent costs are high and purchasing a home feels almost out of reach. The housing affordability crisis in the United States is rooted in fundamental economic principles of supply and demand. The housing market is suffering from a severe shortage of available homes, as many sellers are reluctant to put their properties on the market. This hesitancy is largely due to the fear that moving to a new home will result in higher mortgage payments, given the current historic mortgage rates. Meanwhile, demand for homes surged during the pandemic and has remained strong, despite rising prices and interest rates.

Although there are indications that the worst of the housing affordability crisis may have passed, the market remains constrained. This issue is so pressing that it has become a key topic for voters in the 2024 presidential election. On Friday, Vice President Kamala Harris introduced a comprehensive plan aimed at making housing more affordable. While some analysts welcomed certain aspects of her proposals, others expressed concern that some elements might exacerbate existing issues in the housing market.

Harris’ plan, which builds on previously announced proposals by President Joe Biden, includes several key initiatives:

– Up to $25,000 in down-payment assistance for first-time homebuyers.

– A $10,000 tax credit for first-time homebuyers.

– Tax incentives for developers who build starter homes intended for first-time buyers.

– Expansion of tax incentives for the construction of affordable rental housing.

– The creation of a $40 billion innovation fund to encourage innovative housing construction methods.

– The repurposing of federal land for affordable housing projects.

– A ban on the use of algorithm-driven tools that landlords use to set rental prices.

– The removal of tax benefits for investors who purchase large numbers of single-family rental homes.

Several economists concurred that adding more homes to the market through these incentives would help alleviate the affordability issue by increasing inventory and potentially driving down prices. However, there was skepticism about the effectiveness of capping rent.

Joe Brusuelas, principal and chief economist at RSM US, commented on the plan, saying, “What I’ve seen is three parts substance and one part symbolism.” He praised the focus on increasing housing supply through financial channels, describing it as a solid and forward-thinking proposal. However, he viewed the rent caps as more symbolic than practical.

President Biden’s July proposal to limit rent increases to 5% is likely to resonate with the public, according to Brusuelas. However, he noted that the current economic conditions are already easing rent pressures, making such caps potentially redundant. The Consumer Price Index data for July, released on Wednesday, showed that the “rent of shelter” index had risen by 5.1% annually, according to the Bureau of Labor Statistics. Despite this, recent trends indicate that rents are decreasing, with landlords offering incentives like free parking and rent-free months to attract tenants. Brusuelas believes that this makes the proposed price caps ineffective.

Lanhee Chen, director of domestic policy studies at the Hoover Institute at Stanford University and a former campaign adviser for Republicans like Senator Mitt Romney, criticized the rent control measures in Harris’ plan. “What is effectively a federal rent-control measure… was a bad idea when President Biden proposed it a few weeks ago,” Chen said. He also expressed concerns about the $40 billion innovation fund, suggesting that it might be another financial giveaway to local governments without clear accountability for results.

Chen also voiced apprehension about the down-payment assistance initiative. While it may seem appealing to potential homebuyers, it could inadvertently increase demand and drive up housing costs even further. Brusuelas shared a similar viewpoint, noting that while the down-payment assistance might appeal to Gen Z voters, its overall impact on the market is uncertain.

Despite these concerns, Brusuelas emphasized that the most substantial part of Harris’ plan is the proposal to add 3 million housing units to the market. Long before the pandemic and the subsequent supply chain disruptions and rise in remote work, the U.S. housing market was already struggling with chronically low inventory levels. This scarcity of homes has been a significant factor in driving up prices and worsening the affordability crisis.

“The proposal released Thursday from the Harris campaign is the only one I’ve seen that directly addresses the concerns around the supply of housing,” Brusuelas said. He highlighted the need for a coordinated effort by federal, state, and local governments to increase housing supply, as the nation currently faces a shortage of approximately 3 million homes.

Chen agreed that increasing housing supply is the most commendable aspect of Harris’ plan. “There’s bipartisan support for repurposing federal lands for the construction of affordable housing, and the concept of creating the right tax and economic incentives for builders to construct more new housing,” he said. However, Chen expressed some concerns about the targeting of these incentives but acknowledged that these “supply-side” reforms are long overdue.

Former President Donald Trump has also proposed using federal land to address the housing shortage. During a news conference on Thursday, Trump stated, “We’re going to open up tracts of federal land for housing construction. We desperately need housing for people who can’t afford what’s going on now.”

The Republican National Committee’s platform also emphasizes the importance of promoting homeownership through tax incentives and support for first-time buyers. The platform includes a commitment to reducing unnecessary regulations that increase housing costs and lowering mortgage rates by curbing inflation.

Jeffrey Zabel, an economics professor at Tufts University, expressed cautious optimism about Harris’ plan. However, he noted that turning these promises into reality will be challenging. “While this is a step in the right direction, let’s wait and see what they can actually implement,” Zabel said. He emphasized that proposing such measures is one thing, but successfully implementing them is another. Even if these proposals are enacted, Zabel believes that much more needs to be done to restore balance to the housing supply.

While Vice President Kamala Harris’ housing plan has sparked debate, it addresses the critical issue of increasing housing supply, which many experts agree is essential to solving the housing affordability crisis. The effectiveness of rent caps and down-payment assistance remains uncertain, but the proposal to build 3 million new homes may be the key to alleviating the strain on the housing market.