John doesn't "get it". Kamala hasn't gone far enough. If we gave every American a free house we could eliminate homelessness.
How to Break—and Fix—Housing Markets
Housing prices are too high. Harris will push them higher.
By John Gibbs
Sept. 10, 2024 5:09 pm ET
Are you ready to spend $1,000,000 for a starter home in middle America? That’s where the market is headed if current trends continue.
The common explanation for the problems in the housing market is that there aren’t enough homes, and the solution is therefore to increase supply. There’s truth to that, but the other side of the economic equation is seldom acknowledged: high demand.
Prices increase when demand outstrips supply. In housing, government policies continuously stoke demand, which drives prices higher and puts homeownership out of reach for many Americans. Because the supply of housing is inelastic—meaning it can be increased only slowly—the market can respond to heightened demand only with higher prices.
An example of the prevailing government mentality is Kamala Harris’s proposal to give $25,000 in down-payment assistance to certain home buyers—a demand-side subsidy. It’s meant to ease the burden of purchasing a home, but by increasing demand it would drive prices up and worsen the problem.
Housing policy in a free-market economy should be countercyclical. This means that when the market is excessively hot, government should seek to dampen demand and encourage expansion of supply. When markets are in a serious slump, demand incentives could be applied and supply incentives curtailed.
Instead, by continuously driving housing demand at all times regardless of market conditions—through policies such as monetary quantitative easing, demand-side subsidies, the manipulation of the credit supply, and even large-scale immigration—government policies tend to worsen the problem. Under such an approach, no effort to increase housing supply will make things better. It’s like trying to empty a pool with a bucket while filling it up with a fire hose.
The data confirm the point. Despite myriad new efforts and funding dedicated to increasing the supply of homes, housing affordability has worsened. A July analysis from the National Association of Home Builders found that home prices and rent have increased by 26% and 47%, respectively, since 2020. The National Association of Realtors finds that the average payment on a new mortgage is nearly double what it was five years ago.
To bring housing prices down, government needs to increase supply, among other things by eliminating regulatory barriers to new construction. But government also needs to moderate demand by curtailing the many policies keeping it artificially high. Rejecting new demand-side subsidies would be a good place to start.
Mr. Gibbs served as HUD Assistant Secretary for Community Planning and Development, 2020-21.
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