Housing affordability remains out of reach for many in the U.S. population today. What’s the matter?
- Mortgage interest rates haven’t eased in any kind of significant way so far this year. Maybe in June…
- More than half of U.S. renters report struggling to pay for housing every month.
- Some would like to buy their own homes, but at this point call that a dream.
Joe Biden’s March 2024 State of the Union address laid out the latest plan to help. Here’s an update on the issue, and how the administration intends to deal with it.
Prolonged Affordability Crisis: Why?
There are millions more people looking to buy or rent than there are homes to welcome them. We’ve been hearing this for years now. Why does this affordable housing shortage continue?
Several reasons keep coming up. Note that they all have something to do with inflation:
- Building costs. Especially since the pandemic unfolded, builders have faced surging costs for materials, equipment, overhead, and personnel. This makes housing more expensive for companies to create or refurbish. It contributes to the high price tags on new or renovated homes, which across the board are up about 40% in the past five years.
- Mortgage rates. Yes, they are still elevated. Holding close to 7%, they’ve essentially doubled during the course of the Biden-Harris administration.
- Current owners holding onto their homes. Many current homeowners don’t want to release their homes into the market. Most of them like their current mortgages just fine, thank you. Most current homeowners have mortgages with interest under 4%… Can anyone blame them for hesitating to sell?
- No action from the Federal Reserve. The Federal Reserve has indicated it will cut interest rates this year. But first, inflation needs to stay low enough for the Fed to confidently cut banks’ interest rates. After those future rate cuts, mortgage rates should come down. We’re waiting…
All of the above puts pressure on the Biden administration to use its resources to get the market unstuck. Buyers awaiting federal interest rate cuts could be waiting for months. So the White House says it will be proactive.
Payouts to Home Buyers? Sellers?
Affordable housing groups generally responded with optimism, welcoming the plan laid out in the president’s March 2024 speech. Hopeful homeowners can’t afford to buy, something must be done, and the White House is keenly aware. So far, so good.
But some commentators have critiqued the proposed incentives for buyers. They say stimulating home deals could heat up the market and make the tight supply of homes even tighter.
The administration’s answer? Reward people for putting their “starter homes” up for sale, too. The State of the Union plan includes tax breaks for sellers of relatively affordable homes.
Kevin Sears, president of the National Association of REALTORS® (NAR), issued a statement praising the White House: “We commend President Biden’s commitment to an all-of-government approach,” NAR announced, “to solve this problem.”
NAR had provided a study showing a shortage of 5.5 million affordable U.S. homes. The Association thinks the new White House proposal, taken as a whole, can make “serious headway” in solving the crisis.
What Would the Tax Credits Look Like?
To boost housing affordability, the White House wants Congress to give its blessing to these tax credits:
- A $10,000 tax credit would assist people buying starter homes. The measure would be similar to the mortgage industry’s rate buydowns. The White House says the credit would be about equal to lowering a borrower’s rate by 1.5%. This credit is meant to create 3.5 million successful first-time home buyers in the coming two years.
- A $10,000 tax credit would entice more people to put their “starter homes” on the market. To qualify for this $10K credit, the taxpayer would need to offer a home for sale under the typical listing price for the area. And it has to be sold to a buyer who will live in it. Three million current homeowners could be expected to take the tax reward for selling.
“Tax incentives can help close the affordable housing gap,” NAR’s president said. “And we are especially grateful for the President’s willingness to explore new tax measures.“
Buyers and sellers would be further helped by the proposed crackdown on unfair and fraudulent corporate business practices by certain big real estate industry players. The White House is especially targeting collusion and price fixing.
Builders to Get Breaks, Too?
Given that many of the incentivized home sellers will use the proceeds to buy other homes, the administration wants to do more than get deeds changing hands. The country also needs higher numbers of available homes. Where are they?
Builders are working out there, but demand is outpacing them. We need to remember that interest rates impact builders. Companies could become unable to finance new projects when lending standards are especially strict and interest is especially high. The White House has noted these factors. In the past, Biden has called for less restrictive zoning so that more housing can be made available in smaller spaces.
And now, the White House is asking Congress to stimulate a major building and renovation effort. New tax credits would be available to participating builders. This element of the plan, the White House says, will add two million more homes to the mix. This would significantly ease the pain of today’s housing shortage.
What Happens Now?
This new proposal from the White House contains an interesting balance of potential tax breaks. Now the ball is in Congress’s court. Will these incentives actually take shape? The answer depends on whether lawmakers agree to support the measures, and follow through.
The proposals, Joe Biden says, would address key affordability factors. David Dworkin, an affordable housing expert who heads the nonprofit National Housing Conference, agrees. Dworkin sees the Biden proposal as an important step along the path to bring down rents and home prices.
And that’s good news for a whole lot of ordinary, hardworking, and very frustrated people out there, and many older adults and disabled home seekers. Yet nothing will happen immediately. In order to get this done, the administration will need to work with Congress. As they negotiate, the measures could change.
Many actions will be needed to address the current crisis. We welcome any action that would help deeds change hands at a healthy pace. Let’s see what comes of the State of the Union.
Supporting References
White House Briefing Room via WhiteHouse.gov: Fact Sheet – President Biden Announces Plan to Lower Housing Costs for Working Families (Mar. 7, 2024).
Bryan Mena and Anna Bahney for CNN Business via CNN.com: Biden Says He Can Fix America’s Housing Affordability Crisis. Will It Work? (Mar. 8, 2024).
Brian Kim for ClearValue Tax via YouTube.com: $10,000 Tax Credit for Homebuyers 2024 (Mar. 7, 2024; discussing the State of the Union Address planned announcements).
Tori Syrek Media Contact for the National Association of REALTORS®: NAR Thanks President Biden for Addressing Affordable Housing Supply in SOTU (Mar. 7, 2024).
And as linked.
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Photo credits: NARA/DVIDS (public domain); and Karolina Grabowska via Pexels/Canva.