There have been no lack of government initiatives that aim to make American homes more affordable, including the most recent proposal by Democratic presidential candidate Kamala Harris to offer a$ 25, 000 federal subsidy to find first-time customers. However, recent reports suggest that the government itself has been instrumental in putting some middle-class buyers out of the financial reaches.
” We are short, depending on who you ask, between 4 and 7 million homes nationwide, and we’re building fewer homes than we were back in the 1970s”, James Burling, a property rights attorney at Pacific Legal Foundation and author of” Nowhere to Live: The Hidden Story of America’s Housing Crisis”, said. ” Part of the issue is that government is making it difficult to build,” says the author.
Burling says that “restrictions on home right imposed by all levels of government”, including zoning laws, economic laws, rent control, and state ownership of land, are discouraging the development of affordable housing. He claims that there are many instances of organizations and activist volunteer organizations using the Endangered Species Act to stop housing construction or illegally prosecute landowners for troubling habitats, despite zoning laws being the main culprit.
Edward Pinto, a older brother at the American Enterprise Institute, believes the answer is to change land-use right up to property owners. According to him, zoning laws “ultimately replaced private property rights with nebulous and vague social rights” after enacting them a decade ago.
” The answer to our housing crisis is to legalize duplexes, triplexes, and other forms of light-touch density ( LTD ) housing”, he writes, citing 1940s New England, where two-or three-family houses comprised a third of the region’s housing stock.
Building Starter Homes Is Costly
Development restrictions have made it impossible for developers to build starter homes, and as a result, the market has shifted toward creating fewer, more expensive, larger-scaler, more expensive homes, according to a new report from Cato analyst Scott Lincicome titled” The President’s War on Starter Homes.”
Lincicome reports that the proportion of new homes under 1,400 square feet fell from 40 % of the market in 1973, the bureau’s starting point, to 7 % in 2021, using data from the U.S. Census Bureau. Two-bedroom houses dipped from 12 percentage in 1973 to 9 percent in 2022, and three-bedroom houses fell dramatically from 64 percent to 43 percent, while the share of four-bedroom houses jumped from 23 cent to 48 percent.
The average size of a newly built home was more than 2, 400 square feet in 2023, the National Association of Home Builders ( NAHB) reported, a 50 percent increase over the 1973 average of 1, 660 square feet.
Analysts claim that start homes still have an unmet need, but developers challenge to make money off of them. Lincicome cites the case of a Raleigh, North Carolina, builder, who would typically sell a 1, 400-square-foot house for about$ 240, 000, but would incur expenses of$ 65, 000 to buy the land,$ 126, 000 in construction costs, and$ 43, 000 in selling commissions, closing costs, concessions, taxes, fees, and interest expense.
If all goes well, the developer may know a simple$ 6, 000 in revenue, but if the house stays on the market longer than expected, he will probably lose money.
According to another builder in Minnesota, one-third of his building costs were financed by regulatory fees, which increased the total cost of building a house that could be sold for$ 250, 000 to more than$ 370, 000, according to Lincicome.
A 2021 NAHB study stated that the cost of regulations averaged about$ 94, 000 per new home built. Of that,$ 41, 000 came from the higher cost of buying land due to zoning approvals, environmental studies, and other fees. The remaining$ 53, 000 of government-attributable costs are incurred during construction, including mandatory building fees and engineering studies, as well as labor laws for construction workers.
Government Keeping Land Off the Market
In addition, the government has taken huge amounts of land off the market. According to the Congressional Research Service, the federal government owns about 640 million acres, or 28 percent of the 2.27 billion acres in America.
In addition, state governments own 9 percent of American real estate, according to a 2018 study by Robert Nelson, a public policy professor at the University of Maryland. While federal land ownership is concentrated in western states, many eastern state governments own large percentages of the land within their borders, including New Jersey ( 21 percent of the state ), Florida ( 16 percent ), New York ( 14 percent ), Pennsylvania ( 14 percent ), Michigan ( 13 percent ), and Minnesota ( 11 percent ), Nelson reports.
Banking Laws Penalize Smaller Mortgages
On the demand side, a number of factors have combined to push first-time buyers out of the market. According to Lincicome, one of these is the higher cost of mortgage writing because of the new rules in the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act. This increased banks ‘ overhead costs, making smaller mortgages unprofitable, and removing many community banks that had previously issued them.
According to a 2023 report by Craig Richardson, an economics professor at Winston Salem State University, new mortgages between$ 10, 000 and$ 70, 000 dropped by 38 percent over the previous decade, while mortgages between$ 70, 000 and$ 150, 000 fell by 26 percent. Conversely, mortgages larger than$ 150, 000 rose by 65 percent over that time.
Dodd-Frank “led to an evaporation of potential buyers”, Richardson writes, and” the squeeze in credit for these inexpensive properties, as well as the more onerous regulatory environment, has led to a rapid decline in housing prices in an area with the highest rates of poverty”.
Because homeowners see their equity disappear and may even end up underwater by owing more than their home is worth, he claims,” this is the worst possible way to increase the amount of affordable housing in a city.”
Inflation Hits Low-Income Buyers Hardest
The Federal Reserve’s lax monetary policy and approximately$ 5 trillion in new federal spending since 2021, in the wake of Covid-19 government lockdowns, are perhaps one of the most significant factors putting homeownership out of reach. These policies not only drove up the cost of materials, appliances, labor, and other inputs, they also increased mortgage payments.
From an average 30-year-fixed mortgage rate of 2.67 percent as of December 2020, mortgage rates shot up as high as 7.9 percent in 2023, before falling back to the current level of 6.3 percent. In three years, the amount of debt paid each month more than doubled.
Price increases could be a result of immigration.
Unchecked immigration may also contribute to the lack of housing. Current estimates are that more than 10 million immigrants may have entered the U. S. under the Biden administration, according to U. S. Customs and Border Protection.
Sen. J. D. Vance, a Republican candidate for the vice presidential election, argued that housing has become” totally unaffordable because we brought in millions of illegal immigrants to compete with Americans for scarce homes.”
The Government Is Here to Help
Government incentives include tax breaks for mortgage interest, tax exclusions when selling, and government-sponsored secondary markets that purchase mortgages from banks to increase their ability to offer longer-term fixed rates for home loans. However, these incentives increase the demand for housing without reducing the supply.
The Biden-Harris administration has targeted zoning laws as its solution, announcing grants of up to$ 10 million to jurisdictions that remove zoning restrictions. Harris made a further pledge to construct 3 million new homes by providing low-income housing tax credits and providing down payment funds to specific recipients.
Harris stated on X that “my administration will provide first-time homebuyers with$ 25, 000 to help with the down payment on a new home.”
Some analysts doubt the impact these policies will have, though.
In a Wall Street Journal op-ed, Pinto estimates that Harris ‘ subsidy would be available to about 4 million people at a cost of about$ 100 billion, and this increased demand would drive up their home prices by about 3.6 percent, or$ 175 billion.
” If you think governments create problems, wait till you see government solutions”, Burling said. Prices increased faster than inflation when the federal government began pouring money into higher education.
He said, “inevitably prices will go up because you’re going to have more money chasing the same number of homes” if the government did the same for housing.
Kevin Stocklin is a business writer, award-winning documentary film producer, and former Wall Street banker. Among his documentaries are the 2008 film,” We All Fall Down”, about the collapse of America’s housing market, and” The Shadow State”, on the environmental, social, and governance ( ESG) industry. His work has been published in The Federalist, The American Conservative, and The Epoch Times.