5 Potential Problems With Kamala Harris’ Housing Proposal
Written by
Sean Bryant
Edited by
Chris Cluff
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Getting a $25,000 first-time homebuyer credit sounds great, right? How about 3 million more housing units?
This is what Democratic presidential candidate Kamala Harris would like to do if elected. Unfortunately, Harris’ housing proposal comes with a few potential problems.
Increased Demand Without Addressing Supply Constraints
Despite the number of homes available for sale continuing to rise, inventory levels are still down 26.4% compared to 2017 through 2019 levels, according to Realtor.com. Harris’ tax plan looks to pass a $25,000 first-generation down-payment assistance, which would help more Americans qualify for homes. However, it still doesn’t address supply constraints.
Harris stands behind building 3 million new housing units to eliminate constraints, but is this really doable? The sentiment of construction firms in the U.S. reportedly has been negative since September 2023, indicating hesitation to take on new projects. Couple this with the fact that there was a 9% decrease in homes built in 2023, and reaching that 3 million housing goal seems far-fetched.
“Adding thousands of new buyers to the housing market without addressing the estimated 4.5 million housing deficit seems like a tough challenge to overcome,” said Stephen Kates, CFP and principal financial analyst for RetireGuide.com.
Risk of Price Inflation Due to Government Support
The $25,000 first-generation down-payment assistance program doesn’t address the underlying issues in the housing market. Offering eligible homebuyers this assistance has the potential to further inflate prices. For example, a house that might originally sell for $200,000 might be bumped to $225,000, creating a wash sale in savings.
Homebuyers who don’t qualify for the down-payment assistance program might be priced out of the market. With high interest rates and the cost of living continuing to climb, homebuyers are price sensitive. Sellers who increase prices based on the assumption of a future buyer using the $25,000 assistance program could eliminate many ineligible buyers.
“The most clear-cut criticism is that any down-payment support would only increase prices on homes, which are already near all-time highs,” Kates said. “Increasing the number of buyers and available funding would negatively impact pricing through added competition. Even if the administration succeeds in building many new homes, the volume will show up much slower than the buyers who have access to fresh cash.”
Overreliance on Tax Incentives for Builders
Part of Harris’ plan to build more housing units and stimulate the housing market involves allocating $40 billion to local governments. Some experts think that plan is unlikely to gain bipartisan support.
In addition, local jurisdictions still decide whether to build additional housing units. Passing the burden to local governments can exacerbate the issue when areas that desperately need housing vote against new projects and turn down funding.
“The federal government doesn’t have a whole lot of authority over what happens at the local level,” Daryl Fairweather, chief economist at Redfin, told CNBC. “It’s up to the local planning commissions whether they’re going to allow for more housing in order to get that money.”
Strict Eligibility That Denies Many Americans
If gaining support for a $40 billion housing market package was tough, Harris’ new $25,000 down-payment assistance program would be even harder to pass. The plan has two levels: first-time homebuyer assistance and first-generation homebuyer assistance.
First-time homebuyer assistance applies only to borrowers who have paid rent on time for at least two years and have not signed or co-signed on a mortgage in the past three years. There are also additional requirements based on your specific situation, like a specific debt-to-income ratio.
The first-generation homebuyer assistance program is more lenient but is very difficult to qualify for. At the most basic level, your parents or grandparents cannot have owned a home to qualify. This restriction impacts countless younger generations who are struggling to pave their own way. Tough qualification restrictions and little bipartisan support mean this segment of Harris’ proposal could fall flat.
Restrictions on Corporate Landlords
Another component of Harris’ housing proposal is eliminating corporate landlords from purchasing single-family rental properties or using algorithmic software. This has the potential to further restrict supply by impacting the build-to-rent market, which is one of the strongest areas of new construction.
One proposed item is removing tax benefits for businesses that own 50 or more single-family homes. While this may prevent corporations from purchasing properties, it also would slow down major housing developments and neighborhoods.
In addition, the short-term rental market already has seen a decline in occupancy rates. Eliminating algorithmic software pricing would have a direct impact on small businesses operating in the short-term space.
“The limitations on large-scale institutional buyers aren’t likely to have much of an impact on housing supply since the vast majority of investor purchases are made by owners with [up to nine] properties,” Kates said. “John Burns Research reported that buyers with more than 100 properties make up less than 3% of the market share for new single-family sales, compared to 18% for owners with fewer than 10 properties.”
The Bottom Line
Many of the provisions in Harris’ housing proposal neglect to consider state and local implications. Would the administration micromanage every small county to ensure compliance with new housing regulations? What types of projects would be eligible for funding, and where would individuals go for short-term stays? Like any proposed plan, the details would not be transparent until something is actually passed.
Editor’s note on election coverage: GOBankingRates is nonpartisan and strives to cover all aspects of the economy objectively and present balanced reports on politically focused finance stories. You can find more coverage of this topic on GOBankingRates.com.
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