President Joe Biden’s latest policy proposals could send housing prices even higher due to high inflation and excessive government spending, economists told the Daily Caller News Foundation.
Home prices hit a record high in the latest March data, up 6.5% nationwide and 8.2% in the 10 largest U.S. cities compared to last year. Biden’s latest policy proposals to subsidize housing would continue to fuel a rapid rise in housing prices, exacerbated by huge government spending under his administration, according to economists who spoke with DCNF. (RELATED: EXCLUSIVE: New report details how much regulations under Biden have cost average Americans)
“Subsidies of all kinds distort market prices, discourage private investment, and lead to misallocation of resources,” Peter Earle, an economist at the American Institute for Economic Research, told DCNF. “On top of that, if Biden’s housing assistance proposals are passed without addressing the other sources of high prices – massive federal spending and crowding out effects – it will result in little more than further price disruptions and poor resource utilization – with a new layer of resources. bureaucracy to boot.
Biden tried to entice Americans to buy homes despite the shortage, reaffirming his call Thursday for Congress to provide a $5,000 annual tax credit for two years to first-time homebuyers to offset mortgage costs . The White House says 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 on a 30-year mortgage has soared under Biden, sitting at just above 7% on 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 alleviate the housing shortage involves subsidizing the construction or renovation of 2 million new homes, such as expanding the public housing tax credit to build or preserve about 1.2 million subsidized rental housing, 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 for homebuilders to provide the same quantity to market,” EJ Antoni, a researcher at the Grover M. Hermann Center for the Federal Budget at the Heritage Foundation, told DCNF.
The Biden administration has also set a goal of reducing emissions produced by 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 excessively high emissions.
“The latest absurd regulation, so-called green energy, will add tens of thousands of dollars to the cost of a home and it will take the homeowner about 90 years to recoup the additional cost,” Antoni told DCNF. “Biden’s proposed subsidies for homebuyers will only increase costs further – that’s Econ 101, for God’s sake!” If you increase demand, prices will increase.
The costs are still too high, but today’s report shows progress – with core inflation at its lowest level since March 2021 and headline inflation down 60%.
I have a plan to reduce housing and health care costs and will continue to call on companies with record profits to lower prices.
– President Biden (@POTUS) May 31, 2024
“Biden’s unprecedented spending program has been the main culprit in driving up housing prices,” Antoni told DCNF. “He and his big-spending allies in Congress helped create the highest inflation in 40 years, which drove up housing prices. The Fed’s accommodative monetary policy pushed interest rates so low that it further increased housing demand and real estate prices.”
Inflation surged under Biden to 9% in June 2022 following increased government spending during the COVID-19 pandemic, which has since slowed to 3.4% in April. The Federal Reserve began raising its federal funds rate starting in March 2022, from nearly 0% to now over 5%, significantly increasing the cost of credit such as mortgages.
“Another factor is the crowding-out effect of massive budgetary spending, such as that undertaken under the Chips and Science Act,” Earle told DCNF. “The construction of semiconductor foundries and other similar facilities is driving up the price of labor and construction materials in some areas, driving them away from homebuilders who would otherwise add value. offer to the market.”
The national debt stood at more than $34.6 trillion as of Wednesday, according to the Treasury Department. Under Biden, the debt increased by about $6.87 trillion.
Biden has made big 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 rising interest rates, and the shock of the transition from near-zero rates completely froze the real estate market,” Antoni told DCNF. “Today, homeowners must sell at a very high price to compensate for the loss of a low-interest mortgage. Similarly, homebuilders are also having to sell at a higher price because their costs are at an all-time high. As a result, existing and new housing prices remain stubbornly high and supply remains low.”
Pending home sales fell 7.7% in April compared to last year, representing a major slowdown as the market continues to adjust to prohibitive prices and high rates, according to the National Association of Realtors.
The United States is currently experiencing an estimated shortage of approximately 4 to 7 million housing units due to developers’ inability to track and forecast demand amid high interest rates, rising construction costs and restrictive building regulations. Additionally, a wave of illegal immigration under Biden, exacerbated by his relaxed border policies, has also led to increased demand for housing, further hampering the supply of available housing, particularly for rental housing.
Housing prices, which more closely track the price of rent, have increased 20.9% since January 2021, when Biden first took office, and are up 5.5% from the previous year. last year only in April.
The Biden administration has blamed rising housing costs on corporate greed, alleging that landlords illegally collude to fix prices upwards, and the Justice Department and Federal Trade Commission are filing a brief on the topic in November 2023. The Federal Reserve Bank of St. Louis released a report in May showing that corporate margins were not the cause of the recent surge in inflation, comparing historical data from other economic recoveries .
The White House did not respond to a request for comment from DCNF.
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