The Biden Housing Plan – Part 1

Now that the Democrats are in control of the Presidency and Congress, home building analysts have focused on the impact of Biden's proposed tax credit. The credit will give first time home buyers up to $15,000. Though not exactly like the tax credit enacted during the financial collapse of 2008-2009, home buyers would receive the new tax credit at the time of purchase. This will possibly include down payment assistance. Homebuilders who focus on the first-time homebuyer market, such as D.R. Horton and KB Home, will benefit from paying attention to this market. The tax credit would provide an industry tailwind if enacted.

With demand stretching the industry at the seams, some think this will not give the desired boost. Ivy Zelman, a leading home building analyst, was quoted in Barron's stating, "As good as Biden's tax plan may be to juice demand, it's not what the housing market needs. Demand is not the problem, there is a bottleneck in bringing land to market." ⁽⁴⁾

David Howell of McEnearney Associates in Washington agrees with Zelman's views, "we don't have a demand problem, we have a supply problem. We anticipate that this will push prices higher. Pretty basic economics." ⁽³⁾
With time, new home buyers will likely end up paying more paying for their homes. This is a concern of John Wake, a Forbes real estate contributor. "It seems obvious that Biden's proposal […] would eventually jack up house prices in many markets and would hurt first-time homebuyers who buy after the $15,000 subsidy is capitalized into higher house prices, especially where the subsidy causes the home prices to increase more than the subsidy. ⁽⁵⁾

The bias toward approving only single-family zoning in municipalities exacerbates delays created by the slow grind of local government zoning and permitting processes. Higher density housing, which would provide more affordability, is either prohibited by municipalities or attacked by NIMBYism (an acronym for "not in my back yard"). Charles Marohn, a Minnesota P.E. and activist, states that there is no greater distortion of the market than local zoning codes and that local zoning offices significantly harm property rights and freedom. ⁽⁶⁾

In recent decades it has become increasingly clear that the U.S. patchwork of restrictive land-use and building regulations have exacerbated inequality and sent housing costs soaring in economically dynamic regions. Zoning, land-use, and building policies that prevent housing construction, especially multi-family development, drive up home costs, strain the government's limited subsidy programs, and stifle economic growth. The federal government has not been equipped to influence local zoning laws. ⁽⁷⁾

Biden addresses zoning issues several times in his housing plan when it concerns discrimination (caused by exclusionary zoning) where federal funds are involved. The Biden plan seeks to eliminate local and state housing regulations that perpetuate discrimination. Biden's proposal requires states receiving community development block grants to incorporate inclusionary zoning into their planning, setting aside a portion of new construction for affordable housing.

The legislative process necessary to accomplish Biden's plan, even with the Democrats in control, does not mean reform legislation would pass easily. Many regions most burdened by exclusionary zoning are in states where the Democrats have not brought change in their own back yard. Democrats could reject reforms to which their most influential constituents are hostile. ⁽⁷⁾

Ed Pinto at the American Enterprise Institute doesn't think that Biden's plan goes far enough to eradicate the supply constraints caused by terrible zoning. He argues that single-family zoning promotes NIMBYism, which drives up housing prices tremendously in low-cost areas. Biden's plan doesn't go far enough. You still end up with a housing shortage, nowhere to live, and federally guaranteed loans that increase demand against limited supply. ⁽⁸⁾