On August 16, presidential candidate Kamala Harris unveiled a series of housing proposals that recycle the same failed strategies that have plagued federal housing policy for decades. Among the key components are subsidies for the construction of 3 million new housing units over four years, as well as a total of $100 billion over four years in down payment assistance to first-time homebuyers (FTBs).
Experience tells us her plan would be worse than doing nothing.
These proposals rest on the faulty premise that housing affordability can be improved through subsidies for construction and home purchases. But history offers a cautionary tale: From the 1930s to 2008, Congress passed and presidents signed into law at least 43 housing, urban renewal, and community development programs. Despite their lofty promises, these initiatives consistently failed in making housing more affordable.
Candidate Harris’s plan will be no different.
First, the plan to provide up to $25,000 in down payment assistance to 4 million first-time buyers over four years is likely to inadvertently raise home prices, thereby diminishing the intended benefits of this support. Currently, first-time buyers typically make a median down payment of around $10,500, or 3 percent of the home price. We estimate that even without the Harris proposal, 3 million of its recipients would have been able to purchase a home without any additional assistance and would experience a significant boost their purchasing power, in an already supply limited market. Additionally, the subsidy will also create and draw forward new demand from approximately 1 million additional buyers, further inflating prices. The cost-effectiveness of this plan is also questionable: With only one in four buyers truly needing the assistance, the cost per added homebuyer rises to a steep $100,000.
Second, Harris’s proposal to subsidize the construction of 3 million new housing units over four years is unlikely to significantly increase the overall housing supply. Much of this plan depends on expanding the Low Income Housing Tax Credit (LIHTC), a program that, like many other subsidy programs, faces several challenges, which we dub the Five Cs: cost, complexity, corruption, a cartel of specialized LIHTC developers and non-profits, and the crowding out of private developers; studies show that nearly all LIHTC developments displace other housing that could have been built by the market without subsidies.
On the cost side, we estimate that the average new LIHTC unit costs around $450,000. Additionally, nearly half of the LIHTC units funded are allocated for the renovation and preservation of existing affordable units, rather than adding new ones.
Harris’ proposed tax incentive for building starter homes is the other main driver to add supply. It would suffer from many of the same Five Cs as LIHTC, and like the down payment assistance program, many of these new homes would have been built without the subsidy.
A home available for sale is shown on May 22, 2024, in Austin, Texas. Austin is the only city among the 50 most populous metros in the U.S. to have seen a drop in the income needed to afford a starter home, according to a Redfin report.
Brandon Bell/Getty Images
History shows that this approach can lead to significant market distortions. For example, the Housing and Urban Development Act of 1968 provided easy credit terms and substantial subsidies, resulting in a surge of housing permits by 1971-1972, only for this boom to dissipate by 1975. This program left lasting scars on cities like Detroit, Chicago, and Cleveland—areas that remain hollowed out to this day. Similarly, the 1992 congressional mandate for Fannie Mae and Freddie Mac to meet affordable housing goals led to an easing of credit before the Great Financial Crisis. This policy caused housing permits to double from 1.1 million in 1992 to 2.2 million in 2005, but the market collapsed by 73 percent in 2009, leaving behind millions of foreclosures and a persistent housing supply deficit that still affects us today.
Third, Harris’s $40 billion fund for local governments to explore “innovative” housing solutions will likely funnel money into projects burdened by self-defeating government-mandated affordability requirements, which HUD loves but markets abhor. By further empowering federal bureaucrats, it will do more harm than good.
The fundamental problem with past programs and Harris’s proposed efforts is not insufficient subsidies but structural issues—namely, restrictive zoning and land use rules—that are holding back housing construction. These regulations make buildable land both scarce and expensive.
What is needed is a paradigm shift. As Charles Marohn, the founder of Strong Towns, succinctly put it, “We have to move beyond the narrow, almost futile task of making affordable [subsidized] housing and start working on the broader and more meaningful effort of making housing affordable.”
To achieve this, we need to significantly increase housing supply. The federal government has several levers at its disposal to encourage this result. First, a 10-year plan to auction surplus federal lands for new market-rate home construction could add 200,000 homes per year. This initiative could generate $10 billion in annual receipts. Second, eliminating the mortgage interest deduction for second homes could free up 700,000 existing homes over the next decade for first-time buyers. Third, reducing regulatory costs that hold back builders by increasing construction expenses is crucial—and indeed, this is an issue that Harris’s plan rightfully addresses.
These measures, in combination with state and local efforts to deregulate land use and zoning, can more effectively address the housing affordability crisis, all at no taxpayer cost and without unintended consequences.
Edward Pinto is the senior fellow and codirector of the American Enterprise Institute Housing Center. Tobias Peter is the senior fellow and codirector of the American Enterprise Institute Housing Center.
The views expressed in this article are the writer’s own.
