The White House’s subsidy-heavy housing plan could worsen the housing crisis

The Biden administration recently announced a new plan aiming to tackle the affordability crisis in the housing market. The new plan, which was touted by the president in his 2025 budget proposal, would cost up to $184 billion over the next 10 years. Most of the plan focuses on demand-side subsidies, which will only serve to reinforce the current housing shortage, doing nothing for supply. 

A spiraling housing market can be a costly and dangerous problem for an economy. As research has shown, rising housing costs severely limit upward social mobility. As low-income, unskilled workers are priced out of high-productivity and economically thriving areas, they are locked out of potential growth opportunities. 

This also harms those who remain in these areas, as they will now have to pay higher prices for goods and services. Remaining workers also need to be able to afford housing in areas close to their jobs. These higher labor costs are one reason why the prices of food and basic goods in major metro areas tend to be higher than in lower-density, rural areas.

But as experts have pointed out, the housing affordability crisis is largely a supply-side problem. A mix of pandemic-era shocks, economic instability, interest rate fluctuations, tariffs on building materials, as well as zoning and land use regulations have brought the housing market to a point where supply simply cannot keep up with demand. 

The federal government has previously attempted to tackle some of these constraints through its Housing Supply Action Plan. The program aims to incentivize local governments to revise their zoning laws through conditioned federal transportation grants by granting additional funding to governments that revise their local zoning laws. However, reports indicate that these grants have failed to spur significant reforms. The grants’ conditions are lax enough that some localities have been granted funding without having conducted any major reforms. 

Biden’s newest plan, however, does take some positive steps in the right direction, as the low-income housing tax credit and the Innovation Fund for Housing Expansion do aim to stimulate supply. They incentivize developers to build more housing or to preserve existing affordable housing. Nonetheless, without comprehensive zoning and land use reform, it is unlikely that people will see a sufficient increase in housing supply any time soon.

And since most of these regulations are a state and local issue, there is not much more the federal government can do to spur supply growth. But, at the very least, the administration should abstain from adding fuel to the fire. 

Unfortunately, the core of Biden’s plan is pure gasoline. The proposal would establish a new two-year, annual $5,000 tax credit for mortgage relief credit, a $10,000 tax credit to families selling starting homes, and a $25,000 down payment assistance program for first-time homebuyers. By heavily subsidizing demand, the White House will increase households’ purchasing power while suppliers are unable to respond to the higher demand. 

Ultimately, these subsidies may provide people some momentary relief as prices continue to soar. However, they will ultimately worsen the shortage and leave potential homeowners and renters worse off.

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The administration should reconsider its approach to housing relief. An easy step the administration could take is eliminating tariffs on Canadian lumber and other critical building materials such as steel and aluminum. At the state level, governors and legislatures should look at the success cases of housing liberalization in California and Minnesota and use them as an example to spur zoning and land use reform in their territories. 

Subsidizing demand in a time of supply-side constraints is a surefire way to worsen any shortage. Though the administration’s latest housing plan is a well-intentioned one that may provide some momentary relief for renters and homebuyers, it will likely spur further growth of housing costs in the future. 

Juan Londoño is a senior policy analyst at the Taxpayers Protection Alliance.

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