What housing plans do US presidential candidates Trump and Harris offer?

One of the first remarks United States Democrat presidential nominee Kamala Harris made in last week’s presidential debate at the National Constitution Center in Philadelphia was about housing.

“We know that we have a shortage of homes and housing. And the cost of housing is too expensive for far too many people,” Harris said.

That focus should not come as a surprise, seeing it is the second most common economic concern for American families in the lead-up to the presidential elections, only trailing inflation, according to a recent Gallup poll.

A key part of Harris’s plan to ease that burden is a $25,000 down payment assistance for 4 million first-time homebuyers over the course of four years. As long as prospective homebuyers paid their rent on time for the previous two years, they would qualify for the programme.

When Harris first announced the plan, pundits like business icon Kevin O’Leary said it would cause inflation.

“If you give everyone free money, it will just cause inflation,” O’Leary said in an interview with Fox News earlier this month.

However, Harris’s plan is not free money. It is down-payment assistance paid for through increased taxes on the ultra-wealthy.

Among other proposals, Harris’s tax plan includes a 25 percent unrealised gains tax – which will only affect roughly 11,000 Americans with more than $100m in wealth – a demographic O’Leary is a part of. That proposal alone is expected to bring in roughly $503bn in revenue over the course of a decade.

Surging home prices

But the question is whether $25,000 would make a difference to homebuyers due to the huge gap between the growth in home prices in the last few years versus wages.

“I think that she should focus more on the fact that incomes haven’t kept up with mortgage rates or the escalating home prices,” housing expert Kelly Patterson, an associate professor of social work at the University at Buffalo, told Al Jazeera.

Since the start of 2020, home prices have surged by roughly 50 percent, according to the S&P Case Shiller Home Price Index – a monthly report that shows the average US home price. While real wages had the second-fastest increase in any other economic recession in the last four decades, they have not kept up with the cost of housing. Average hourly wages grew by roughly 23 percent over the same period, according to data from the US Labor Department.

“Housing for working people and essential workers, people working to serve the economy, and for less advantaged people is certainly unaffordable. There’s the housing part of the problem and an income part of the problem. And both of those two things have to go together,” Richard Florida, a professor of economic analysis and policy at the University of Toronto, told Al Jazeera.

At a campaign event in Pennsylvania on Friday, the Vice President said her administration would “work with the private sector to build 3 million new homes by the end of my first term.”

She would do that by providing tax initiatives for builders to create starter homes including a $40bn innovation fund that incentivises developers to build more affordable housing options.

“These tax incentives to build starter homes and smaller homes are important because if developers don’t have that kind of tax incentive, they really lose money in building affordable small homes. It is a lose-lose situation for developers,” Patterson added.

Role of institutional investors

In the more immediate term, to curb the cost of housing, the White House has called on Congress to pass what is called the Stop Predatory Investing Act. The legislation, if passed, would end tax breaks for large institutional investors.

The administration of President Joe Biden also recently called on Congress to pass legislation that would put more pressure on corporate landlords to keep costs low by capping rent increases at 5 percent annually or lose certain tax benefits.

Institutional investors have continued to buy a bigger share of the housing market, driving up prices in the process and undercutting first-time homebuyers.

“Right now, first-time homebuyers are definitely disadvantaged versus, you know, more affluent buyers who can more or less pay cash – people who can buy a home out of their savings accounts or private equity firms,” Janneke Ratcliffe, the vice president of housing finance policy at the Urban Institute, told Al Jazeera.

In the first quarter of this year, institutional investors made up 14.8 percent of single-family home purchases – the highest percentage since 2001 when Realtor.com started compiling the data.

Institutional investors have decreased available housing stock for homeowners across the US by as much as 30 percent, according to a recent study from the New York University Stern School of Business.

“I think when you have institutional investors, it takes a huge amount of supply off the market and makes an investment good. I think the most important thing we can do is probably shift from housing as an investment to housing as a utility,” University of Toronto’s Florida added.

But without intervention, that may not happen. Metlife Investment Management forecasts that if trends continue at this pace, institutional investors could control 40 percent of all single-family rental homes in the US by the end of this decade – a move that drives up costs for renters and limits available real estate for prospective owners.

Rhetorically, that is something that, at least, Republican vice presidential nominee JD Vance agreed – well before he joined the campaign of Republican nominee Donald Trump – was a problem. “When these hedge funds take special government privileges and go and buy up all the single-family homes, what they’re doing is destroying wealth in this country,” he said in a speech in July 2021.

Policy-wise, that is a different story. The Trump-Vance campaign has not come out against (nor have they endorsed) institutional investors’ buying up single-family homes.

Both Trump and Harris want to open up more housing supply on federal land. Several US cities have already begun implementing comparable plans on the local level. Last month, New York City announced a task force to find city-owned properties that it could turn.

Ban mortgages for undocumented immigrants

So far, Trump has offered few specifics on how he would increase affordable housing. While he has said he would “ promote homeownership through Tax Incentives and support for first-time buyers”, he has not offered any specifics about what that means.

What he has said is that he will “stop illegal immigration” and reverse “Democrats Open Borders Policies” despite the fact that no such policy exists nor was ever proposed. As per recent data, the Biden administration deported more undocumented migrants than Trump, but Trump’s team argues that the shortage of housing is exacerbated by undocumented migrants taking up homes that could otherwise be used for citizens, “legal” migrants and permanent residents.

In a speech to the New York Economic Club, Trump said he would ban mortgages for undocumented migrants.

However, it is not clear that this is a significant issue. It is generally difficult for migrants to qualify for a mortgage as documentation is required for the application process. Migrants can use an Individual Taxpayer Identification Number (ITIN) which is given to US residents who are not eligible for a Social Security number. It is considered a valid form of identification for banks.

Of the 10 million home loans originated in the US last year, only about 5,000 to 6,000 mortgages were generated using ITINs, according to a report from the Urban Institute.

Tariffs

However, what Trump is offering is tariffs.

Earlier this month, Trump told a crowd of supporters in Wisconsin – a state where Harris leads in the polls by four percentage points – that he would put 100 percent tariffs on countries that pulled away from using dollars as the currency pegged to global trade. The move would potentially affect countries like China, India and Brazil, which have floated the idea of moving away from the dollar.

This comes after the Republican nominee suggested a blanket tariff of 20 percent – double his earlier plan – on all foreign goods and 60 to 100 percent on Chinese imports.

Sixteen Nobel prize-winning economists said in a letter that Trump’s plan would “reignite” inflation.

When it comes to construction, economists largely believe that Trump’s plans will only drive up the cost of building new homes, not lower them.

A report from the non-partisan think tank, the Peterson Institute for International Economics, found that Trump tariffs could cost the average US household $2,600 and would result in higher costs for US businesses that rely on foreign-sourced raw materials, including for construction. The study points out that rising costs also mean that lower- and middle-income households – which spend more of their income as opposed to being able to save – would be affected more.

This is not just a forecast of what is to come. It mirrors Trump’s policies during his first term, which builders slammed Trump for long before the COVID-19 pandemic led to supply chain snarls and a jump in costs.

For instance, in 2017, the US imposed 20 percent tariffs on softwood lumber imports from Canada amid a trade dispute between the two countries. Within a year, it drove the cost of softwood lumber up 80 percent. It was not until the last few weeks of the Trump administration that the US reduced the tariffs to 9 percent. (The Biden administration did not alleviate the problem and in 2021, it increased softwood lumber tariffs up to 17.9 percent.)

In 2018, Trump imposed 25 percent tariffs on imports of raw materials like steel. The policy affected imports across the globe including trade between allies like the European Union.

In 2021, Biden undid Trump’s move to raise tariffs on the EU. However, when it comes to China, it is a different story. As recently as May, the White House increased tariffs on Chinese goods amid allegations of unfair trade practices – a move that will affect steel and aluminium costs, however, only marginally as China only accounts for 2 percent of all steel imports.