By Aarthi Swaminathan
Younger voters and voters in battleground states, in particular, consider housing to be a top concern, surveys show
Sky-high housing costs are a top issue for many Americans in the upcoming presidential election, and Vice President Kamala Harris’s newly announced proposal to rein them in may resonate with some key voting blocs.
Housing costs are at a record high, making the prospect of homeownership unattainable for many renters in the U.S.
“I know what homeownership means. It’s more than a financial transaction; it’s so much more than that – it’s more than a house. Homeownership and what that means, it’s a symbol of the pride that comes with hard work, it’s financial security, it represents what you will be able to do for your children,” Harris, the Democratic presidential nominee, said Friday during a speech in Raleigh, N.C.
“And sadly, right now, it is out of reach for far too many American families,” she added. “There’s a serious housing shortage in many places. It’s too difficult to build, and it’s driving prices up.”
Ahead of Harris’s speech, her campaign on Thursday outlined her plan to boost housing supply – including a tax incentive for builders to develop starter homes sold to first-time buyers; an expansion of existing tax incentives for developers to build rental housing; and a $40 billion federal fund to spur innovative housing construction.
The campaign said the effort would create 3 million new housing units over the next four years.
Harris also outlined her plan to provide first-time home buyers with up to $25,000 toward their down payment on a new home. The campaign said it expected the proposed policy to help more than 4 million first-time home buyers over four years.
‘Buying a home feels impossible,’ especially for young people
Younger voters and voters in battleground states, in particular, consider housing to be a top concern, according to survey data.
Ninety-one percent of Gen Z adults and 87% of millennials say housing is the top issue for their generation, a February survey by Redfin (RDFN) of 3,000 homeowners and renters found.
“Housing affordability is a cornerstone of this year’s presidential election because even though the economy is fairly strong, unemployment is low and wages are rising, buying a home feels impossible for many Americans,” Redfin Senior Economist Elijah de la Campa said in a blog post. “This is particularly the case for young people, who have seen the cost of starter homes increase twice as fast as incomes.”
A majority of battleground-state voters also see housing affordability, including for renters, as a problem both nationally and in their own communities, according to a poll of 1,000 registered voters in Arizona, Georgia, Michigan, Nevada, North Carolina, Pennsylvania and Wisconsin conducted on behalf of the Tenant Union Federation and HouseUS, two organizations that support tenant organizing.
The U.S. faces a shortfall of homes for sale, record-high home prices and elevated mortgage rates.
Housing costs have risen by 110% over the last five years, according to Zillow (Z) (ZG), with rents growing 35% and home prices growing nearly 50% over the same period. The typical U.S. home’s value was $362,156, according to the company’s estimates.
Housing affordability has deteriorated particularly over the last two years, according to the Federal Reserve Bank of Atlanta. A family in the U.S. earning a median income of $81,400 would need to allocate nearly 44% of their earnings toward housing costs if they were to buy a median-priced $383,300 home, the Atlanta Fed’s data showed.
Households that spend more than 30% of their income on housing are considered “cost burdened.”
Who stands to benefit most from Harris’s housing plan
The key beneficiaries of Harris’s housing plan would be millennials and housing developers, economists told MarketWatch.
“How do you meet the need for a number of millennials who are now reaching peak home-buying age?” Jeffery Roach, chief economist at LPL Financial, told MarketWatch. Millennials – those now between the ages of 25 and 43 – were the largest group of home buyers in 2023, according to the National Association of Realtors, followed by baby boomers.
While existing homeowners can tap into home equity in order to buy their next home, millennial renters don’t have the same benefit, which complicates their path to first-time homeownership.
“Those that are coming out of college or just starting their career, those folks are feeling a lot more than the pain of high prices and high borrowing costs,” Roach added.
Housing developers also stand to gain from Harris’s proposal, particularly because they will be able to take advantage of tax benefits. She is proposing the first-ever tax incentive for builders of starter homes, which are now scarce in the U.S., to complement existing programs offered to developers.
“We are pleased that the foundation of her plan calls for the construction of 3 million new housing units because the primary way to tackle the nation’s housing affordability crisis is to increase the nation’s housing supply,” Carl Harris, chairman of the National Association of Home Builders, an industry group, said in a statement.
“But any tax incentive to support the production of starter homes must be targeted to local market conditions and be widely available,” he added.
Harris’s plan also drew concerns from at least one right-leaning think tank about the use of federal funds.
“You have to be a very specialized builder-developer to be in the subsidized-housing business,” Ed Pinto, a senior fellow at the American Enterprise Institute, told MarketWatch. “The vast majority of builder-developers are in the market-rate business. It’s much simpler, it’s not as complex and it’s lower cost. And so you get a specialized group around the country.”
He added that “the chance of actually having 3 million additional units built over four years, given the history that the federal government has in making these predictions, is literally slim and none.”
To be sure, home builders are unable to develop in some parts of the U.S. due to zoning rules that are locally controlled. In such areas, local authorities, not the federal government, decide whether they want to allow for denser zoning, which would allow for a higher number of housing units.
In Falls Church, Va., an affluent suburb of Washington, D.C., former Mayor David Tarter knows the struggle to address the housing shortage all too well.
A common solution in some cities, including in Tarter’s, has been to require that some new buildings constructed by developers have an affordable-housing component, or that home buyers get some down-payment assistance, said Tarter, who now leads George Mason University’s Center for Real Estate Entrepreneurship.
In one part of Falls Church, he recalled, the city allowed developers to build denser housing, which down the line required the city to rebuild an old school to increase its student capacity. “It’s a nuanced thing,” he said, but “as a local government official, you have to consider things … like how my city is going to grow, but such that it doesn’t grow too fast.”
-Aarthi Swaminathan
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08-16-24 1752ET
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