President Joe Biden’s latest policy proposals could jack up home prices even higher following high inflation and excessive government spending, economists told the Daily Caller News Foundation.
Home prices surged to an all-time high in the latest data from March, up 6.5% across the country and 8.2% in the 10 largest cities in the U.S. compared to last year. Biden’s newest policy proposals of subsidizing housing would continue to fuel rapidly rising home prices that have been exacerbated by huge government spending under his administration, according to economists who spoke to the DCNF.
“Subsidies of every sort distort market prices, discourage private investment, and result in misallocated resources,” Peter Earle, economist at the American Institute for Economic Research, told the DCNF. “On top of that, if the Biden housing assistance proposals go through without addressing the other sources of high prices — massive federal spending and crowding-out effects — it will result in little more than further price dislocations and misused resources — with a fresh layer of bureaucracy to boot.”
Biden has attempted to create incentives for Americans to buy homes despite a shortage, reaffirming his call on Thursday for Congress to give a $5,000 annual tax credit for two years to first-time home buyers to offset mortgage costs. The White House claims that the subsidy would offset mortgage rates by “more than 1.5 percentage points” and increase the number of families buying homes by 3.5 million, according to a White House fact sheet.
The average rate for a 30-year mortgage has skyrocketed under Biden, sitting at just above 7% as of Thursday, up from the pandemic low of around 2.65% in January 2021. Mortgage rates peaked under Biden at 7.79% in October 2023.
The president’s plan to ease the housing shortage is to subsidize the construction or renovation of 2 million new homes, such as through expanding the Low-Income Housing Tax Credit to build or preserve around 1.2 million subsidized rental units, according to the fact sheet.
“His plan to add 2 million homes is equally misguided because it would simply crowd out an equal amount of private sector construction by consuming the materials, labor, and equipment needed by homebuilders to supply the same quantity to the market,” E.J. Antoni, a research fellow at the Heritage Foundation’s Grover M. Hermann Center for the Federal Budget, told the DCNF.
The Biden administration has also set its goal of reducing emissions produced from everyday household items like appliances, which already cost the average American family more than $9,000 in compliance efforts. In February, the Department of Energy finalized regulations that will limit Americans’ access to residential washers and dryers that produce too high of emissions
“The latest nonsensical, so-called green energy regulation will add tens of thousands of dollars to the cost of a home and take about 90 years for the homeowner to recoup the additional cost,” Antoni told the DCNF. “Biden’s proposed subsidies to home buyers will only drive costs up further — this is Econ 101, for goodness’ sake! If you increase demand, prices will rise.”
Costs are still too high, but today’s report shows progress – with core inflation at its lowest since March 2021, and overall inflation down 60%.
I have a plan to lower housing and health care costs and will continue to call on corporations making record profits to lower prices.
— President Biden (@POTUS) May 31, 2024
“Biden’s unprecedently large spending agenda has been the biggest culprit in driving up home prices,” Antoni told the DCNF. “He and his big-spender allies in Congress helped create 40-year-high inflation, which drove up home prices. The Fed’s accommodative monetary policy pushed interest rates so low that it further increased housing demand and home prices.”
Inflation surged under Biden to 9% in June 2022 following heightened government spending during the COVID-19 pandemic, which has since decelerated to 3.4% as of April. The Federal Reserve began hiking its federal funds rates starting in March 2022 from near 0% to now over 5%, drastically increasing the cost of credit like mortgages.
“Another factor is the crowding-out effect of massive fiscal spending, such as is being undertaken under the Chips and Science Act,” Earle told the DCNF. “Building semiconductor foundries and other such facilities bids up the price of construction labor and building material in certain regions, drawing them away from homebuilders who would otherwise be adding supply to the market.”
The national debt totaled more than $34.6 trillion as of Wednesday, according to the Treasury Department. Under Biden, the debt has grown by around $6.87 trillion.
Biden has made large stimulus packages a key part of his broader agenda, passing the $280 billion Chips and Science Act in 2022 to subsidize research and construction in the semiconductor industry. The president also signed the American Rescue Plan in March 2021 and the Inflation Reduction Act in August 2022, which authorized $1.9 trillion and $750 billion in new spending, respectively.
“Inflation then led to higher interest rates, and the shock of transitioning from near-zero rates completely froze over the housing market,” Antoni told the DCNF. “Homeowners have to sell at a steep premium today to make up for the loss of a low-interest rate mortgage. Similarly, homebuilders also have to sell at a premium because their costs are at an all-time high. Thus, the price of existing and new homes remains stubbornly high, and the supply remains low.”
Pending home sales declined 7.7% in April compared to last year in a major slowdown as the market continues to adjust to prohibitively high prices and elevated rates, according to the National Association of Realtors.
The U.S. currently has an estimated shortage of around 4 million to 7 million housing units due to developers being unable to keep up with and predict demand amid high interest rates, rising construction costs and restrictive building regulations. Additionally, a surge of illegal immigration under Biden, which has been exacerbated by his relaxed border policies, has also placed increased demand on shelter, further hampering the available supply of housing, particularly for rental units.
The price of shelter, which more closely tracks the price of rent, has increased 20.9% since January 2021, when Biden first took office, and is up 5.5% from just last year as of April.
The Biden administration has blamed the rising costs of housing on corporate greed, alleging that landlords are illegally colluding to fix prices higher, and the Department of Justice and the Federal Trade Commission file a brief on the subject in November 2023. The Federal Reserve Bank of St. Louis released a report in May that showed that corporate markups were not the cause of the recent spike in inflation by comparing historical data from other economic recoveries.
The White House did not respond to a request to comment from the DCNF.
Featured image credit. (Official White House Photo by Adam Schultz)
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