The Biden Housing Plan – Part 2

The prices of homebuilding materials trended upward through the majority of 2020, led by lumber increases. According to the U.S. Bureau of Labor Statistics, in the five months spanning April to September 2020, the Producer Price Index of lumber zoomed 90.9%. ⁽¹⁾

"Lumber prices are adding $16,000 to the cost of an average single-family home," says Mike Tobin. "That's another reason why we're seeing affordability and construction delays because lumber just can't get to the job site as quickly as it can." ⁽¹⁾

Trump's foreign trade wars placed 25% tariffs on steel, while lumber and aluminum are subjected to 20% and 10% markups, respectively. In 2019 the U.S. imported $68 billion of iron and steel, $22 billion of aluminum, and $19 billion of wood, according to the United Nations COMTRADE database. ⁽¹⁾
Though a Biden presidency wouldn't necessarily remove tariffs, it would attempt to mend international fences. "Bringing the combined weight of partners and allies together, you're in a much better position to affect change," declares Anthony Blinken, nominee for Secretary of State. He continues that the Biden administration would use tariffs when needed but backed by a strategy and plan. ⁽¹⁾

During his campaign, Biden announced a plan that would eliminate 1031 Exchanges for taxpayers with annual incomes that exceed $400,000. The widely used tax benefit has been on the books for 100 years. A 1031 exchange allows real estate investors to defer capital gains taxes when they sell properties if they use the proceeds to make new investments, typically within a few months.

The primary benefit of 1031 exchanges is that it can provide more real estate suitable for development into housing. It is popular with wealthy retirees that have real estate holdings. It is estimated that $100 billion in property sales annually are attributed to 1031 exchanges. ⁽⁵⁾

If implemented per the campaign promises, the Biden plan will provide billions of dollars for new residential construction and rehabilitation. New housing investments must adhere to the Davis-Bacon Act wage requirements to be eligible for funds. The Davis–Bacon Act of 1931 is a United States federal law that laborers and mechanics are paid the local prevailing wages on public works projects. It applies to "contractors and subcontractors performing on federally funded or assisted contracts in excess of $2,000 for the construction, alteration, or repair (including painting and decorating) of public buildings or public works".

As of 2016, the act increases the cost of wages in federal construction projects by an average of $1.4 billion per year. ⁽⁶⁾

The first paragraph of Joe Biden's housing policy paper says, "housing should be a right, not a privilege." Later it says, "On the first day of his administration, he [Joe Biden] will direct his Secretary of Housing and Urban Development to lead a task force of mayors and other local elected officials to put on his desk within 100 days a roadmap for making this right a reality nationwide." ⁽³⁾

The "Housing is a Right" slogan has many skeptics because it has a terrible track record. It sounds bold, but it also sounds a lot like this quote: "That new right is the fundamental and very precious right to have a roof over your head - a decent home." That's from President Lyndon Johnson when he signed the Housing and Urban Development Act of 1968. Unfortunately, after 50 years, the black homeownership rate is about the same as when President Johnson signed the act. ⁽⁷⁾

The Black homeownership rate almost doubled from 1940 (23%) to 1970 (42%) when discrimination against Black families was legal, horrific, and widespread. Yet, after President Johnson declared it a right, the Black homeownership rate stayed essentially the same (41% in 2018). ⁽⁷⁾

The Biden administration has lofty and important aspirations. It is essential to the well-being of the U.S. that African Americans build wealth through homeownership. It will not come easily. As shown by the lack of progress since the Housing and Urban Development Act of 1968, the Biden administration faces some tough challenges.

• Biden's ambitious Housing Plan aims to alleviate many of the housing ills in the U.S., including affordability and racial discrimination. It will expand affordable housing and may stimulate minority homeownership with a tax credit of up to $15,000.
  
  
• With a tab of $640 billion, the plan is costly. Critics argue that it is just "throwing dollars at problems." With the slimmest of control over the U.S. Senate, it may be challenging to get the funds that the President wants.
  
  
• The plan is elaborate and will demand considerable expertise to administer. Fighting exclusionary zoning and racist NIMBYism will be difficult challenges.
  
  
• The plan does little to rein rapidly rising construction costs. With increased regulations, it is likely to add to cost increases.
  
  
• Labor scarcity calls for a broadened immigration policy.
  
  
• Labor and material shortages constrain builders' ability to build new homes. The plan does little to address those constraints sufficiently.
  
  
• Efforts to improve the Black homeownership rate have shown no success during the last half-century. It is essential to our society that this plan delivers clear Black wealth- building progress.