‘Starter home’ tax breaks, aid for first-time buyers: What to know about Harris’ affordable housing proposals

Affordable housing is a cornerstone of the “opportunity economy” that Vice President Kamala Harris sketched out last week. Harris’ economic policy pitch included proposals to lower the costs of owning and renting a home in the U.S. 

“We should be making everything to make it more affordable to buy a home, not less,” Harris said during her speech in Raleigh, N.C.

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The Democratic presidential nominee called for the construction of 3 million new housing units, both for rent and for sale, over the next four years — an initiative housing experts say would help improve affordability.

That’s “the most exciting part of her plans to me,” said Daryl Fairweather, chief economist at Redfin, an online real estate brokerage.

“The bipartisan sweet spot around the housing affordability challenges that we have today is on increasing supply,” said Dennis Shea, executive director of the Bipartisan Policy Center’s J. Ronald Terwilliger Center for Housing Policy.

Ever since the foreclosure crisis, a major period of property seizures in the U.S. between 2007 and 2010, there have been far fewer new single-family homes and multi-family rental buildings under construction, said Janneke Ratcliffe, vice president of the Housing Finance Policy Center at the Urban Institute, a non-profit think tank in Washington, D.C.

There’s “a more acute shortfall” when it comes to affordable homes, she said, whether for renters looking for quality rental units or first-time buyers looking for their first home.

To get to those 3 million new units, a Harris-Walz administration would introduce a “first-ever tax incentive” for home builders who build starter homes sold to first-time homebuyers, according to the proposals unveiled last week. 

The initiative would complement the Neighborhood Homes Tax Credit, according to the announcement. A bill pending in Congress called the Neighborhood Home Investment Act, which would promote the creation and rehab of starter homes for sale in distressed communities, would create that tax credit, said Shea.

“It would create this tax credit, and that has strong bipartisan support,” he said.

Former President Donald Trump has also talked about ways to increase housing supply as part of his presidential campaign proposals.

“We’re going to open up tracks of federal land for housing construction,” Trump said in an Aug. 15 press conference. “We desperately need housing for people who can’t afford what’s going on now.”

But Edward Pinto, senior fellow and codirector of the American Enterprise Institute’s Housing Center, said it’s “much, much harder” for the government to pass “supply-side proposals,” compared to efforts that generate demand by making homebuying easier for consumers.

“My conclusion is that [Harris’] housing plan would be worse than doing nothing,” he said.

It will be important for Harris to clarify what she means by “starter home,” said James Tobin, CEO of the National Association of Home Builders.

“It’s hard to define what a starter home is,” said Tobin, as underlying costs make it hard to keep building expenses low.

“In most markets in the country, it’s hard to build to that first-time home buyer because of labor costs, land costs, borrowing costs for a builder, and then material cost,” he said.

Defining a range of price points for a starter home will also be important, as it may vary widely across different markets, said Tobin.

“In California, a starter home might cost seven or $800,000, but in the South … it might only be $250,000 or $300,000,” he said.

The list of Harris’ proposals also includes a $40 billion innovation fund. The money would empower local governments to fund local solutions to build housing, as well as support local solutions to build housing.

Yet some experts are skeptical it will fulfill the intended goal.

“The federal government doesn’t have a whole lot of authority over what happens at the local level,” said Fairweather. “It’s up to the local planning commissions whether they’re going to allow for more housing in order to get that [innovation fund] money.”

“But time and time again, locals and local governments, local homeowners ignore incentives because they’re so resistant to building more housing,” said Fairweather.

Additionally, the $40 billion housing innovation fund may be too high of a cost, making it unlikely to receive bipartisan support, said Shea: “I don’t know if the market could bear that price tag in Congress.”

Harris hopes to provide $25,000 down-payment assistance to first-time homebuyers who have paid rent on time for two years, with more generous support for qualifying first-generation homeowners.

The proposal stems from an idea the Biden-Harris administration presented earlier this year, which called on Congress to implement $25,000 in down-payment assistance exclusively for 400,000 first-generation buyers (or first-time buyers whose parents weren’t homeowners) and a $10,000 tax credit for first-time buyers.

Harris’ blueprint would apply to all first-time buyers and broaden the reach to more than 4 million qualifying applicants over four years.

But “there’s just not a lot of bipartisan support,” said Shea.

During an Aug. 16 appearance on Fox Business, Sen. Tim Scott, R-S.C., said Harris’ $25,000 down payment assistance “will only make the demand higher with the supply not moving, which means that prices will go up, fewer people are going to be able to afford it.”

“And frankly, unless they’re going to embed financial literacy in any program, it only means there will be a higher level of default,” said Scott.

To help renters, Harris addressed two pending pieces of legislation. The Democratic presidential nominee called on Congress to pass the Stop Predatory Investing Act, a bill that calls for removing key tax benefits for those who own 50 or more single family properties. This initiative would curtail major investors from buying up large sums of single-family rental homes.

Meanwhile, the Preventing the Algorithmic Facilitation of Rental Housing Cartels Act would crack down on companies who use tools to fix market rent prices.