Kamala's Mixed Bag of Housing Proposals
Inflation and housing cost are the most pressing economic concern for Americans in 2024, according to Gallup’s annual poll. Since December 2019, the monthly home payment more than doubled. The cost to purchase a home rose 51%. Rents rose 31%. Inflation and barriers to housing production interacted to rocket the country’s largest asset class. The result is a substantial wealth divide between those that purchased before the bonanza and those still on the sidelines.
Needless to say, housing is top of mind for millions of voters in the 2024 presidential election. It’s an issue ripe for a political champion. This was the backdrop of Kamala Harris’ speech on housing solutions yesterday. It’s a good thing that housing is getting airtime, but I’m left with mixed feelings on the speech.
The headline pushed by Kamala’s team was the construction of “3 million homes” in her first term. This is the kind of ambition we need. Unfortunately, her first two proposals are not promising – homebuyer subsidy and crackdown on software. The third proposal has potential – cutting red tape.
Proposal #1: $25,000 subsidy to first time homebuyers
A homebuyer subsidy will drive up housing prices. When there is not enough cake to go around, giving people more money to buy cake does not solve the problem. Baking more cakes is the solution. Subsidies are particularly ineffective in supply constrained markets, like housing. Not to mention program cost. It would have cost $33 billion if implemented in 2023. For context, the federal government spent $45 billion on infrastructure last year.
Proposal #2: Crackdown on price fixing software
Pricing software is an unlikely cause of rent and home price inflation. The alleged culprit is RealPage which gives landlords vacancy and rent rate visibility into competing properties. RealPage is party to an ongoing Department of Justice price collusion investigation. But RealPage has only a 7.5% market share of property management software. This is hardly enough to enable its clients to drive national housing inflation. RealPage and similar softwares allow landlords to accurately price their properties at going rates, in some cases less than they would have concluded themselves. Plus, there are plenty of industries where competitors know each others prices and customer flow – look at gas stations and grocery stores.
Punishing rational market actors was a common theme in her California Homeowner Bill of Rights, which she drafted as attorney general. In her view, landlords, banks, and investors are to blame. Not the NIMBY towns that block construction. The misalignment of housing production incentives are detailed in “States Should Govern Zoning”.
Proposal #3: Cut red tape at state and locals levels
This is where things get exciting, but also politically fraught.
In the 2020 presidential election approximately 52 million renters voted, compared to 115 million homeowners. Kamala is trying to thread a needle by activating renters while not signaling negative outcomes for the far larger group of homeowners. There were no direct mentions of “lower housing prices” nor “zoning reform” but we did get “cut red tape”.
It is yet to be seen which red tape will be cut. It would be a herculean effort to wrestle control of zoning from towns. Though states have made in-roads. Montana passed a law to allow second dwellings on all single dwelling lots. Massachusetts recently passed similar legislation. Possible “cut red tape” outcome are providing federal incentives to YIMBY towns or speeding up building permit timelines. Both ideas were previously endorsed by Kamala.
In sum, housing is inching its way into the presidential race. Voting dynamics make rapid relief unlikely, but at least proposals are being made.