Experts scoff at affordable housing plans laid out by both Harris and Trump

Record-high home prices and soaring mortgage rates have put the dream of homeownership out of reach for millions of Americans and made housing a top pocketbook issue in the presidential campaign.

Both major party presidential candidates offer competing proposals to address the crisis, but housing experts doubt either plan will fix the problem.

The affordability problem is severe, with home prices reaching a record high in June. According to the National Association of Realtors, the median sale price for all housing types was $426,900, a 4.1% increase from June 2023 after 12 months of price gains.

Construction has been unable to keep up with demand. The U.S. is short nearly 4 million housing units. In recent years, construction has dipped as high mortgage rates have cooled developers’ desire to build. Freddie Mac data shows construction rates are at their lowest since the 2008 financial crisis.

Vice President Kamala Harris, the Democratic presidential nominee, proposed a mix of government spending and tax cuts to spur construction while giving first-time homebuyers extra cash for down payments.

Former President Donald Trump, the Republican nominee, pledged to reduce demand by deporting illegal immigrants and reducing red tape to lower burdens on housing developers.

Housing experts say both plans are unworkable.

“The Harris plan offers more detail but is unrealistic, and the Trump plan has very little detail and is not very serious,” said Cliff Rossi, who held risk management positions at Freddie Mac and Fannie Mae.

Spurring construction

Part of Ms. Harris’ plan focuses on the supply side of the problem. She has vowed to work with private-sector homebuilders to construct 3 million homes over the next four years. The Harris campaign said she would achieve this goal with a $40 billion innovation fund that offers tax credits to make projects more economically feasible for developers. The theory is that it would fuel a construction spree and close the housing gap.

The innovation fund would need congressional approval, which is not a guarantee. President Biden proposed a slimmer $20 billion innovation fund that went nowhere in Congress.

Mr. Rossi called the plan ambitious. In the years before the housing bubble burst in 2008, developers averaged about 1.6 homes per year, he said. Last year, only 1.4 million housing projects were started — a 9% decline from 2022, according to data from the Structural Building Components Association.

Analysts say the largest barrier to home construction isn’t developers’ desire to build but rather onerous zoning laws and heavy regulations that can tie up projects for years. Housing developments also need water, sewerage and roads, which can delay construction.

“It’s one thing to create tax incentives to build homes, but the challenge is that they would need to take on local land use regulations, and that is not really the jurisdiction of the federal government,” said Casey Dawkins, who teaches urban studies and planning at the University of Maryland.

Ms. Harris proposed incentives such as withholding federal highway funding if municipalities don’t wave onerous restrictions.

Mr. Trump has proposed targeting local regulations but hasn’t specified which types or how he would incentivize municipalities. He has signaled support for more restrictive zoning in suburban communities to prevent multifamily homes or condominiums from being built in single-family areas. Mr. Trump has not detailed how he would achieve either of these goals.

Down payment assistance

On the demand side, Ms. Harris has promised $25,000 in down payment assistance for first-time homebuyers and more generous support for first-generation homeowners. The Harris campaign said the proposal would put 1 million first buyers in new homes annually.

She did not detail how the plan would work. It is unclear who would be eligible or whether the money would be given to buyers up front or as delayed tax credits.

Experts worry that arming buyers with extra cash while the housing supply is limited would increase competition and prices.

“This might create some inflationary pressure on housing, so it might be counterproductive,” said Michael Bader, who teaches housing policy at Johns Hopkins University.

Mr. Rossi said that giving money to people without the income to meet high mortgage rates and home prices could backfire. He noted parallels to the 2008 financial crisis when the delinquency rate was a record 9.2% because people purchased homes out of their price range.

“You don’t want to give people $25,000 and have them default on their mortgage later on, and that’s exactly what we are going to see. We saw that in the run-up to 2008 when we pushed to get people into the homes that didn’t have the equity to stay in their homes,” he said.

Mr. Bader said guardrails had been implemented since 2008 and that even with the $25,000 assistance, buyers would have to meet more stringent requirements to purchase homes than before the financial crisis.

Building on federal lands

Ms. Harris and Mr. Trump agree on one solution to the housing shortage: selling surplus federal land to developers. This concept is in Ms. Harris’ housing plan and the Republican National Committee platform.

Under the proposal, the federal government, which owns roughly 28% of the country’s land, would be open to bidding. Developers who bid on the parcel must promise to keep a certain percentage of the units affordable for the local population.

Many federal lands are unsuitable for residential construction. The areas where the government owns the most land, particularly in the West, are far away from areas with the most extensive housing needs. Plus, those areas often lack basic infrastructure, such as water and sewerage.

“I’m skeptical of this idea,” said Mr. Dawkins. “Federal land near major urban areas is pretty scarce. You aren’t going to open up Yosemite Park and build a 1,000-home subdivision, and water supply is limited in some of these areas. It doesn’t alleviate the shortage of housing in more urban areas.”

Previous efforts to sell federal lands have been entangled in litigation. A plan to sell land owned by the Department of Veterans Affairs to build 1,200 affordable units in West Los Angeles has been mired in lawsuits from residents of the wealthy Brentwood area surrounding it. The litigation is continuing.

Immigration

Mr. Trump promised to lower housing costs by deporting illegal immigrants, who he says are fueling high demand and driving up prices.

“We also cannot ignore the impact that the flood of the 21 million illegal aliens has on driving up housing costs,” he said this month at the Economic Club of New York.

Research is mixed on whether immigration has a significant impact on home prices. A 2017 paper published in the Journal of Housing Economics concluded that the immigration wave of roughly 1% of the area’s population results in a 0.8% increase in rents. A Congressional Budget Office analysis of the economic impact of the immigration surge under Mr. Biden concluded that it pushed up prices by increasing the demand for housing.

Housing experts are skeptical that deporting illegal immigrants would significantly impact the housing market.

“This is a problem that has been around for a long time before the immigration issue started to ramp up in a big way,” Mr. Rossi said. “It’s a housing supply issue fueled by a bad series of events like the pandemic and the cost of building materials going up.”

Mr. Dawkins said mass deportations may be counterproductive because it would reduce the labor pool available to build homes and apartment buildings.

“Restricting immigration would affect the supply side pretty severely because we rely on foreign workers,” he said. “If you eliminate those workers, you are going to increase the cost of construction, which would have a bigger impact on the demand side.”

Interest rates

Mr. Trump has repeatedly pledged to lower borrowing costs, but presidents have little impact on mortgage rates. The Federal Reserve sets policy rates independently from the White House.

During his administration, Mr. Trump repeatedly pressed the Fed to lower interest rates, but those requests were ignored. He also considered firing Federal Reserve Chair Jerome Powell, but it was unclear whether he had the authority.

Even without presidential nagging, the Fed lowered a key interest rate by half a percentage point last week to counter a slowing economy.