A Troubling Preview of Harris’ Housing Policies
By cutting its borrowing rate by a half percent on Wednesday, the Federal Reserve has provided some potential relief for wannabe home owners. The cut will lower mortgage rates and signals a sense that inflation is slowing a bit. With rising inventory and pricing dips in many U.S. markets, perhaps more Americans can finally afford a property even though median home prices remain at a daunting $412,000 nationwide — and above $900,000 in California.
One bit of good news, of course, doesn’t make the housing issue less of a hot-button political topic. This is the first presidential election I recall where housing topped the list of issues addressed by the candidates. Housing is a local and — to a lesser degree — state issue. Beyond adjusting interest rates and promulgating regulations mostly related to low-income housing and lending standards, the feds can’t — and shouldn’t — really do much about market conditions.
When the federal government does act, it often makes matters worse. It’s been the source of much debate, but federal housing and lending policies triggered the 2008 market collapse, as cheap money and subprime loans led to financial catastrophe. In California, prices in some inland areas dropped by more than 50 percent. More recently, federal COVID policies — e.g., stimulus spending and stay-at-home orders that enabled people to work at home — drove up housing demand. Prices soared.
Home pricing is a supply and demand issue. A plethora of environmental rules and local building regulations (urban growth boundaries, Not In My Back Yard sentiments, soaring building fees, etc.) restricted housing construction, thus leading to a run-up in prices on existing supply. Yet instead of recognizing that reality, the feds are at it again — and pushing policies that will only exacerbate the problem by creating unnecessary scarcity.
For instance, the U.S. Department of Justice recently filed an antitrust lawsuit against RealPage, a Texas-based company that provides property management software that helps landlords set accurate pricing. Per a CBS News report, the company “engaged in a price-fixing scheme by sharing nonpublic, sensitive information, which RealPage’s algorithmic pricing software used to generate pricing recommendations.”
Landlords always seek the best pricing information and use a variety of sources, from real-estate websites to competitive listings. But, you know what, it doesn’t really matter what some online source says. It’s just an estimate. One might figure out the “right” price and then list a house for rent — only to find dozens of applicants or a lack of interest from anyone. Market demand determines the price. These are simply tools. They don’t “fix” prices.
In her campaign, Democratic nominee Kamala Harris has outlined a national agenda to lower housing costs. Some of it is on point, albeit somewhat outside of federal authority. For instance, she called on efforts to “cut red tape and enable more home building to bring down housing costs.” Her plan also calls for tax incentives for building starter homes, an expansion of an existing tax incentive to build rental housing, and a new federal fund to promote “innovative” housing construction. I’m generally in favor of tax breaks and credits, but against federal expenditures.
Her plan to provide $25,000 in taxpayer-funded down-payment assistance to first-time buyers will be costly and inflationary. Our debt-soaked budget can’t handle yet another giveaway, and it will end up being a lottery for some lucky beneficiaries. But it will drive up housing prices. All of a sudden, I imagine that homes will magically rise in price by around $25,000, market permitting. But — and perhaps I’m being charitable here — at least part of her plan focuses on incentives.
But given the Biden administration’s attacks on RealPage, it seems clear that Vice President Harris will focus heavily on her prosecutorial instincts by filing lawsuits against private companies. Delve into her housing plan and it calls for something like what DOJ is doing: “Stop rent-setting data firms from price fixing to raise rents to double digits.” She also vows to take on “corporate and major landlords” and to “stop Wall Street investors from buying up and marking up homes in bulk.”
Her model echoes San Francisco’s proposal to ban the use of artificial intelligence in determining rental rates. As the American Consumer Institute opined, “The rise in rent prices is driven by complex market factors such as inflation, interest rates and supply-demand dynamics — not AI algorithms. Scapegoating technology for broader market issues is misguided.”
San Francisco’s strict rent controls have led to a 15 percent decline in available rental stock, according to a 2018 study from the National Bureau of Economic Research. I’ve reported on 52,000 vacant San Francisco homes and apartments, which are largely the result of the city’s tenant laws that discourage people from renting out apartments to strangers. Owners fear that if they rent them out, they’ll never be able to remove the tenants.
Of course, GOP candidate Donald Trump hasn’t presented a consistent alternative message. When he was president, Trump and his Housing and Urban Development secretary, Ben Carson, penned a Wall Street Journal op-ed that depicted efforts to reduce zoning restrictions as a war on suburbia. More recently, he rightly called for reducing zoning restrictions in a Bloomberg interview — but then reverted to form and promised to ban illegal immigrants from obtaining mortgages.
The good news is that the candidates are at least talking about the housing crisis. The bad news is that most of what they propose — and some of what the current administration is doing — will only make matters worse. It would be nice if they addressed the real problem for the housing crunch rather than scapegoating private companies and landlords.