BIDEN HOUSING SUBSIDY PROPOSAL A RECIPE FOR FAILURE

National Review

 

Biden’s Housing Plan Will Backfire

By JUDGE GLOCK

March 25, 2024 6:30 AM

 

The White House proposes to increase demand for housing and add more obstacles to its supply: a recipe for failure.

 

The Biden administration often seems to forget some of the basic principles of economics. In Biden’s world, the market is no longer a place where supply and demand meet. It is a strange morality play in which greed and goodness fight for supremacy, and only the government’s generosity or its firm hand can ensure that Americans get their full bag of chips.

 

This economic confusion was nowhere better illustrated than in Biden’s speech in Las Vegas last week, during which he reiterated several proposals for lowering housing costs that he had previewed in his State of the Union address.

 

The fundamental problem with housing today is that federal, state, and local regulations constrict supply, which drives up prices. Biden’s backwards solution is to subsidize demand by handing out more government money to buyers, renters, and developers. These subsidies would further drive up prices, waste public money, and drive home ownership even farther out of reach for many Americans.

 

Biden proposes that Congress provide $10,000 in tax credits to first-time home buyers who are getting a mortgage, $10,000 in tax credits to people who sell a lower-priced home, and $25,000 in down-payment assistance for those he calls “first generation” home buyers. Together, these tens of thousands in subsidies would be far more than the average cost of closing a home, which amounts to about $7,000. Don’t be surprised if people find lots of ways to trade homes just to grab some free cash. This increase in trading could further bump up prices.

 

The United Kingdom in recent years tried similar home-buyer subsidies, and they have widely been judged a failure. Its 2013 “Help to Buy” program provided subsidized loans of up to 40 percent of a house’s value. One study showed that the scheme did not increase the housing supply in London, where would-be buyers struggled the most to find affordable housing, but significantly increased housing prices. Either the White House has never heard about this program, or it has chosen to forget about its effects.

 

For renters, Biden proposes expanding government-housing vouchers. One way he intends to do this is by transforming the program into an open-ended entitlement guaranteed to select groups. This would do little, if anything, to help those in need. One study showed that the increased demand resulting from vouchers increased rents for low-income households in the largest metropolitan areas by 16 percent, which meant they ended up paying more even after the subsidies.

 

If there is one surefire sign that the economists in the White House have lost an internal battle, it is Biden’s use of the word “gouging.” The Biden administration now promises to fight “rent gouging by corporate landlords” by siccing the Department of Justice and the Federal Trade Commission on housing “junk fees” and other verboten practices. But such prosecutions would just raise landlords’ costs and encourage them to shift from fees to higher rents. They cannot reduce the overall cost of renting a home.

 

The few parts of Biden’s plan that involve increasing supply contain within them the seeds of their own destruction. Biden proposes a $20 billion competitive grant to create affordable housing, but this policy is at odds with recently mandated increased costs of government-funded housing. A little-noted aspect of Biden’s Bipartisan Infrastructure Law expanded “Buy America” mandates, which require government contractors to use American-made products, to a host of new areas including housing and property. The law also expanded the types of products subject to the mandates — which until then applied to steel, iron, and manufactured goods — to “construction materials.” Abundant evidence shows that these requirements drive up project costs.

 

There are only two ways to reduce housing prices. The first is to reduce demand, such as by making certain places unlivable. This method has been “successful” in reducing prices in places such as Detroit, but it is not one other places would want to copy. The second, and only acceptable, way is to increase the supply of housing by getting government out of the way of growth. Instead, the Biden administration wants to increase demand and add more burdens on supply. The inevitable effect would be increased prices. One only hopes future administrations do not forget about the resulting failures.

 

 

 

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