Could Harris spur construction of 3 million new homes?
Vice President Kamala Harris, as part of her presidential run, pledged recently to spur construction of 3 million new housing units in her first four years.
The campaign said Harris would propose a new tax incentive for companies that build homes for first-time buyers, and other programs, said The Wall Street Journal.
Promising the construction of new homes hasn’t worked out well in California. Gov. Gavin Newsom pledged in 2017 to build 3.5 million new homes by 2025. As of this summer, he’s roughly 87 percent short of the target.
Harris also proposed a $40 billion fund to help local governments develop innovative solutions to the lack of housing supply and repurpose some federal land for affordable housing.
The San Diego Union-Tribune asked local economists and business executives: Could a Harris administration spur construction of 3 million new housing units?
Economists
Caroline Freund, UC San Diego School of Global Policy and Strategy
NO: But campaign promises are often excessive and prioritizing construction will support a much-needed increase in the supply of housing. In recent years, there have been about 1.4 million privately owned housing starts annually, according to U.S. Census data. Achieving 3 million total would take herculean subsidies and unprecedented deregulation. Currently there is limited fiscal space for such an effort, and deregulation happens at the local level and tends to be stymied by NIMBYism.
Ray Major, economist
YES: However, some aspects of the Harris plan could spur the construction of new homes in the same way that pumping tens of billions of dollars into any sector of the economy would spur growth in that sector. Proposals in the plan to implement what would be akin to federal rent control, housing subsidies to certain buyers and giveaways of public lands amounts to a redistribution of wealth rather than a solution to the fundamental problems related to the housing shortage.
Kelly Cunningham, San Diego Institute for Economic Research
NO: Over the past five years, the U.S. built an average of 1.45 million housing units per year, so constructing 3 million new units in four years was already exceeded. Spurring additional construction by such an amount would require erasing local controls and easing regulatory burdens, which the federal government does not directly determine. Much like Newsom’s unobtainable directive, accelerating housing construction is not viable by mandating overall prevailing directives, imposing price controls, or fabricating dollars.
Alan Gin, University of San Diego
YES: There seems to be bipartisan support for increasing the supply of housing. Demand-side policies have been viewed as more effective in terms of increasing housing, but something needs to be done on the supply side, as supply bottlenecks have led to increased demand causing higher housing prices. The bipartisan support plus the use of federal land will make it easier for the 3-million-unit goal to be achieved at the national level than could be done at the state level for California.
James Hamilton, UC San Diego
NO: It makes no sense for the Treasury to try to stimulate home construction with tax changes at the same time that the Federal Reserve is discouraging construction with high interest rates. Moreover, both policy tools are short-term and have limited long-run effects on the supply of housing. House prices are much higher in San Diego than in Texas. We need to address this problem in San Diego, not in Washington, D.C.
Norm Miller, University of San Diego
NO: Based on research by colleagues, such tax credits and down payment grants could accelerate construction and demand by 500,000 or so per year, sufficient for maybe half of the 3 million target within one administration. However, they do distort the housing market, benefit a lucky subset of buyers and support higher prices rather than broadly mitigating affordability challenges. The construction innovation funding could help in areas where land is a minor component of price, but local building codes must be relaxed in order to be effective.
David Ely, San Diego State University
YES: Notably, the plan acknowledges the critical need to significantly expand the supply of housing. Incentives for builders to construct entry-level housing, the repurposing of federal land for housing, and funds for local governments to find innovative solutions should act to better align supply with housing demand and ease the shortage. Challenges will remain. Builders will continue to be concerned about regulations and zoning restrictions so success in expanding housing stock will differ across regions.
Executives
Jamie Moraga, Franklin Revere
NO: This is a campaign promise to gain votes that’s unlikely to come to fruition. While it sounds nice on the campaign trail, realistically it will be difficult to achieve. Case in point, Newsom is an estimated 87 percent short of his 2017 pledge to build 3.5 million new homes by 2025. Even if Harris can spur new construction, taxpayers are likely to fund these initiatives while demand could inadvertently lead to increased home prices.
Phil Blair, Manpower
YES: With a concerted and coordinated effort of cities, school districts, counties, states and the federal government. We will find governmental agencies control millions of acres of unused, but developable land. Yes, the housing units will need to be smaller, more densely packed and use communal land like parks instead of front and back yards. Very much the European model. Zoning laws will also have to be modified to allow housing in previously commercial only areas.
Gary London, London Moeder Advisors
NO: Federal funding and tax relief help, but the shortage of housing is a local and state issue. San Diego can build more housing by reforming zoning and removing destructive anti-development policies that make housing more expensive. One compelling fix is to reduce the minimum lot size from 5,000 to 1,000 square feet to encourage the construction of smaller, less expensive homes. San Diego needs to reverse the exit of middle income families.
Bob Rauch, R.A. Rauch & Associates
NO: Like previous presidents, Harris will be limited in her ability to significantly lower housing prices because interest rates and the supply and demand for homes influence housing costs. Both factors are out of her direct control. Throwing $25,000 toward a home for first-time homebuyers will do nothing but increase inflation and put more homebuyers at risk of default, like in 2008. Giving tax breaks to developers will not bring in 3 million new homes.
Austin Neudecker, Weave Growth
NO: Most of Harris’ proposal details focus on assisting first-time buyers in financing homes. By lowering the existing financial barriers, we create more buyers and further increase prices. We need new development in high-demand geographies. Harris’ developer incentives have the best chance of addressing the root of the affordability issue. I would like more details focused on how they will create incremental supply. Capping rent increases is another popular claim, but not a sound economic policy.
Chris Van Gorder, Scripps Health
YES: Any stimulus package where the money gets to the developer instead of in between states or agencies would stimulate some level of new building. But giving federal tax incentives to builders does not address the state and local regulations, which will likely remain an impediment to construction. An even bigger hurdle would be the need for Congress to pass a new law for Harris’ plan to be put into effect, and that would require a Democratic House.
Haney Hong, San Diego County Taxpayers Association
NO: First, it’s a pipe dream to think we’d ever get cohesive policy out of Washington. Second, and even if the fantasy came true about D.C. getting something done, we have tens of thousands of municipalities with control over land use who can just do what they want to do anyhow. Third and perhaps most important, we aren’t containing costs, and perhaps the market would operate more efficiently if instead we talked about fewer not more market interventions in housing.
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