Both presidential candidates claim they can fix the housing affordability problem that is frustrating millions of Americans. Unfortunately, neither candidate’s proposals would increase the supply of affordable homes — and Vice President Kamala Harris’s plan would make matters worse.
The median sales price of all the homes sold in the United States was more than $412,000 at the end of July, according to the Federal Reserve Bank of St. Louis — an increase of $90,000, or about 28 percent, from the same time in 2019.
Meanwhile, 30-year fixed-rate mortgages, which remained below 5 percent for the decade of 2010s, now average 6.2 percent, after dropping below 3 percent during the pandemic. The increase in home prices, coupled with the higher interest rates, have priced millions of would-be home buyers out of the market.
The nationwide surge in home prices and the rise in mortgage rates are both related to increased inflation brought on by the recent surge in federal spending and the Federal Reserve’s expansionary monetary policy (that is, increasing the money supply without a corresponding increase in economic growth) to accommodate it.
But what’s really causing the housing affordability crisis are dozens of state and local regulations that make it more difficult, and expensive, to build new homes? Density restrictions. Minimum lot sizes. Development impact fees. Minimum setbacks. Building permit quotas and moratoria. Parking requirements. Urban growth boundaries. Environmental restrictions. Combine these with a wide range of other regulatory restrictions, and you have the answer of what is driving up prices and decreasing housing supply.
States and cities on the East and West Coast tend to have the most restrictive regulations and, as a result, the least affordable housing. Economists Joe Gyourko and Jacob Kimmel of the University of Pennsylvania’s Wharton School of Economics have estimated how much the implicit “zoning tax” adds to the cost of land in cities around the country. They found that zoning restrictions increase housing costs on the median lot in San Francisco by more than $1.6 million per acre, by close to $600,000 in New York City, $700,000 in Seattle and $800,000 in Los Angeles.
The presidential candidates can make all the promises they want, but they can’t change the reality that most of the regulations that restrict housing supply are imposed at the state, county and local levels. Unless the Supreme Court reverses its 1926 decision in Village of Euclid v. Ambler Realty, allowing local zoning control, there is little that any president can do to end this.
Harris’s plan calls for building three million new “housing units,” taking on “corporate landlords,” and providing $25,000 in down-payment assistance for first-generation homebuyers.
Unfortunately, her proposals to address the root cause of the affordability crisis by increasing supply — tax incentives and new federal funds — have no chance of significantly increasing the housing supply, because the U.S. president has no authority to roll back the state and local regulations that prevent construction.
Harris’s other two proposals would actually exacerbate the affordability crisis. A crackdown on corporate landlords would shrink the supply of rental units and increase rents. Providing certain buyers with $25,000 in down-payment assistance would make housing more affordable for lucky recipients, but would it drive up housing prices for everyone else. Subsidizing the demand for housing while supply remains restricted would mostly result in higher prices — not more housing.
Former President Donald Trump has promised to reduce regulations that restrict housing supply and to “open up portions of federal land for large-scale housing construction” that will have “ultra-low regulations.”
Like Harris, however, he can’t overturn state and local regulations that restrict supply. Opening up federal land might be a step in the right direction, but most federal land is not in areas where housing is in short supply and least affordable, so the impact of this policy would be minimal.
The federal government could promote housing affordability by helping to keep mortgage interest rates low by restraining inflation and showing some fiscal discipline. The massive federal deficits of recent years, financed by increased borrowing, have had the opposite effect.
Unfortunately, neither campaign shows any interest in such an approach.
Benjamin Powell, a senior fellow at the Independent Institute in Oakland, Calif., is director of the Free Market Institute and a professor of economics at the Rawls College of Business at Texas Tech University. He is the co-editor of “Housing America: Building Out of a Crisis.”