{"id":176813,"date":"2024-08-26T15:56:23","date_gmt":"2024-08-26T21:56:23","guid":{"rendered":"https:\/\/www.biggerpockets.com\/blog\/?p=176813"},"modified":"2024-08-26T16:10:39","modified_gmt":"2024-08-26T22:10:39","slug":"evaluating-kamala-harris-economic-plan-for-the-real-estate-industry","status":"publish","type":"post","link":"https:\/\/www.biggerpockets.com\/blog\/evaluating-kamala-harris-economic-plan-for-the-real-estate-industry","title":{"rendered":"Evaluating Kamala Harris\u2019s Proposals For the Real Estate Industry"},"content":{"rendered":"\n

Kamala Harris announced <\/span>her <\/span>plan for the economy<\/span><\/a>, which includes many incentives and disincentives for the real estate industry. <\/span>Many of her points <\/span>are <\/span>actually<\/span> designed<\/span> to stimulate the real estate industry, which could benefit investors (although <\/span>cause<\/span> some unintended consequences to boot).<\/span> For others, we\u2019re in the crosshairs. <\/span><\/p>\n\n\n\n

Let\u2019s <\/span>take a<\/span> look at each one individually and how they\u2019ll affect the economy, particularly the real estate industry. <\/span>We\u2019ll ignore proposals that don\u2019t relate to real estate\u2014for example, a \u201cprice-gouging ban\u201d or limiting taxes on tips\u2014and <\/span>just<\/span> focus on our industry.<\/span><\/p>\n\n\n\n

Helping First-Time Homebuyers<\/span><\/h2>\n\n\n\n

Harris\u2019s plan is<\/span> to offer \u201c\u2026first-time homebuyers with $25,000 to help with the <\/span>down payment<\/span><\/a> on a new home.\u201d <\/span>This<\/span> would be the most significant down payment assistance the government has ever offered and dwarves the <\/span>$8,000 First-Time Homebuyer Tax Credit<\/span><\/a> that was in place between 2008 and 2010. <\/span>That also happened while we were in the middle of a deep recession and credit crunch<\/span>, unlike today<\/span>.<\/span> <\/span><\/p>\n\n\n\n

In 2020, there were <\/span>1,782,500 first-time homebuyers<\/span><\/a> in the country. Had all of them used such an incentive, that would have cost the taxpayer <\/span>a cool<\/span> $44.6 billion.<\/span><\/p>\n\n\n\n

Of course, <\/span>not every<\/span> first-time <\/span>homebuyer<\/span> would use it.<\/span> But then again, with such an incentive in place, demand for first-time homebuyers would <\/span>likely<\/span> skyrocket.<\/span><\/p>\n\n\n\n

FHA loans already only require <\/span>3.5% down<\/span><\/a> to purchase a home. And Fannie Mae dropped its required down payment for <\/span>multifamily properties<\/span><\/em> where the owner lives in one unit <\/span>to just 5%<\/span><\/a> last November. <\/span><\/p>\n\n\n\n

Indeed, with a 3.5% down payment, a house that costs $714,286 would <\/span>conceivably<\/span> have the down payment <\/span>completely<\/span> covered by this program.<\/span> (And this ignores seller credits<\/span>, which <\/span>are<\/span> commonly offered<\/span> to homebuyers during negotiations.)<\/span><\/p>\n\n\n\n

Affording the down payment is an issue for prospective homebuyers, but not the main one. <\/span>One recent survey<\/span><\/a> found 40% of non-homeowners said <\/span>that<\/span> their inability to afford a down payment was their <\/span>main<\/span> obstacle.<\/span> But<\/span> more (46%) cited insufficient income.<\/span> Especially outside expensive coastal cities with almost comically bloated housing prices, the biggest issue for homebuyers isn\u2019t the down payment\u2014it\u2019s affording the monthly mortgage payments, especially with interest rates where they are.<\/span><\/p>\n\n\n\n

By throwing money at the demand side without addressing the supply side, the most likely result is <\/span>just<\/span> to increase the price of properties all the more, as prospective homebuyers with $25,000 in government money behind them bid up prices against each other.<\/span> This<\/span> will make the mortgage payments even less affordable. This program could <\/span>certainly<\/span> be beneficial for<\/span> house hackers<\/span><\/a>, but on a policy level, it\u2019s likely throwing good money after bad.<\/span><\/p>\n\n\n\n

Expanding Affordable Housing<\/span><\/h2>\n\n\n\n

To give Harris credit, she acknowledges the first-time homebuyer tax credit is only a stopgap \u201cwhile we work on the housing shortage.\u201d <\/span>As I\u2019ve <\/span>said repeatedly<\/span>, the <\/span>only way <\/span>to <\/span>truly<\/span> alleviate the nation\u2019s housing issues<\/span> is to build more<\/span><\/a>.<\/span><\/p>\n\n\n\n

Harris wants to focus on expanding affordable housing. As <\/span>The Hill <\/span><\/em>describes<\/span><\/a>:<\/span><\/p>\n\n\n\n

\u201cHarris\u2019s plan pushes for <\/span>the construction of<\/span> 3 million new housing units over the next four years, along with what it described as the \u2019first-ever\u2019 tax incentive for building starter homes for first-time homebuyers.<\/span><\/em><\/p>\n\n\n\n

\u201cThe plan calls for an expansion to an existing tax credit for businesses that build affordable rental housing<\/span>, as well as<\/span> a $40 billion federal fund to help boost construction.<\/span> The plan also details a proposal to make some \u2018federal lands eligible to be repurposed\u2019 for new and affordable housing developments.\u201d<\/span><\/em><\/p>\n\n\n\n

Unfortunately, affordable housing doesn\u2019t always turn out to be <\/span>affordable<\/span>. <\/span>One study by Michael Eriksen<\/span><\/a> found that the Low-Income Housing Tax Credit (LITHC) program \u201cencourages developers to construct housing units that are an estimated 20% more expensive per square foot than average industry estimates.\u201d <\/span><\/p>\n\n\n\n

On the plus side<\/span>, Harris\u2019s plan to offer tax credits for businesses building affordable rental housing could be a <\/span>major<\/span> opportunity for developers. <\/span>This<\/span> is especially true, as such incentives could alleviate some of the regulatory costs that make <\/span>it so difficult to build<\/span> housing for lower-income residents.<\/span> (One study found <\/span>regulatory costs amounted to $93,870<\/span><\/a> for each house built in 2021, almost a quarter of the total.)<\/span><\/p>\n\n\n\n

That said, single-family starts were already at an annualized rate of <\/span>1.46 million in December 2023<\/span><\/a>. That would amount to almost double the 3 million new housing units Harris\u2019s administration wants to build over the next four years and doesn\u2019t even include <\/span>multifamily<\/span><\/a>. <\/span>Government spending tends to <\/span>crowd out private investment<\/span><\/a> unless in an economic slump (which housing development is not), so this may <\/span>just<\/span> end up costing<\/span> the taxpayer more and <\/span>getting<\/span> the consumer less.<\/span> (Such government programs also tend <\/span>to be ripe for corruption<\/span><\/a>.)<\/span><\/p>\n\n\n\n

Lastly, the U.S. has had <\/span>near-record <\/span>levels of immigration<\/span><\/a> over the course of<\/span> the Biden-Harris administration. While this is a politically fraught issue, it would be <\/span>a good<\/span> time to slow that down until the housing shortage <\/span>is alleviated<\/span> in order to<\/span> cool off demand in the housing market. <\/span>This<\/span> is something a Harris administration is highly unlikely to do.<\/span><\/p>\n\n\n\n

Stopping \u201cPredatory Investors\u201d<\/span><\/h2>\n\n\n\n

Harris also wants to stop Wall Street from buying <\/span>up<\/span> single-family homes with a \u201c<\/span>Stop Predatory Investing Act<\/span><\/a>.\u201d The bill is <\/span>rather<\/span> simple. Here it is in its entirety:<\/span><\/p>\n\n\n\n

\u201cThis bill denies taxpayers owning 50 or more single-family properties any tax deduction for interest paid or accrued in connection with any single-family residential rental property. It also disallows depreciation of residential rental property owned by such taxpayers.\u201d<\/span><\/em><\/p>\n\n\n\n

The <\/span>mortgage interest deduction<\/span><\/a> is <\/span>not nearly as<\/span> important<\/span> as<\/span> many think, but prohibiting depreciation could have severe consequences for real estate investors.<\/span> This deduction<\/span><\/a> allows real estate investors to deduct building <\/span>depreciation<\/span><\/a> (the IRS considers a residential property to depreciate to zero over 27.5 years) from net income to reduce their income tax liability. It\u2019s a key advantage of real estate investing and given how cash-intensive real estate is, removing it could be particularly damaging. <\/span><\/p>\n\n\n\n

Investors invest a substantial amount in lower-income neighborhoods, where there are relatively fewer homeowners, and such a tax change <\/span>would likely cause a flight of capital<\/span><\/a> from neighborhoods that need it the most.<\/span><\/p>\n\n\n\n

It\u2019s also distressing that Harris describes \u201ctaxpayers owning 50 or more single-family properties\u201d as \u201cinstitutional investors.\u201d Most investors who own that many properties (like us) are much closer to being small businesses than \u201cinstitutional investors.\u201d Trust me, we\u2019re nothing close to BlackRock. <\/span><\/p>\n\n\n\n

The idea that Wall Street is buying Main Street is mostly a myth. As I noted in <\/span>a previous article<\/span><\/a>:<\/span><\/p>\n\n\n\n

\u201c\u2026What appears to be a skyrocketing amount of houses <\/span>being bought<\/span> by institutional investors only changed the percentage they purchased from about 0.5% to 2.5%, not exactly what I would call a \u2018significant chunk\u2026\u2019 <\/span>The percentage of homes <\/span>being bought<\/span> by all investors <\/span>had<\/span> actually<\/span> been decreasing<\/span> from 2013 until the end of 2020<\/span>; <\/span>from 29% of all purchases to 20.5%.\u201d<\/span><\/em><\/p>\n\n\n\n

If Harris is elected, this proposal <\/span>would hopefully<\/span> be amended or scrapped.<\/span><\/p>\n\n\n\n

Who\u2019s Paying For All This?<\/span><\/h2>\n\n\n\n

For all the intense political rhetoric flying back and forth between Kamala Harris and Donald Trump, Americans should look for commonalities to bridge what appear to be our implacable differences. And one point of apparent bipartisan agreement is to spend like a drunken sailor with a stolen credit card.<\/span><\/p>\n\n\n\n

Indeed, despite the COVID-19 pandemic being over and the U.S. not (at least officially) being at war, the United States is running deficits of over <\/span>$1.5 trillion a year<\/span><\/a>. Trump can\u2019t make much of an issue of this, though, as in 2019, the year before COVID hit, he had a \u201cpeacetime\u201d deficit of $0.98 trillion. Personally, I don\u2019t think saying, \u201cI didn\u2019t even technically have a trillion-dollar deficit before COVID,\u201d is a particularly convincing campaign slogan.<\/span><\/p>\n\n\n

\"Statistic:<\/a>
Find more statistics at Statista<\/a><\/p>\n\n\n\n

The Harris campaign <\/span>is promising<\/span> a lot of new spending (to be fair, so is Trump). While there will be some new taxes, such taxes <\/span>obviously<\/span> have a cost to the economy and won\u2019t come close to covering the shortfall. <\/span><\/p>\n\n\n\n

Next year<\/span>, for the first time <\/span>ever<\/span>, the United States <\/span>will spend more on debt service than its military<\/span><\/a>.<\/span> And it will get much worse in the years to come.<\/span><\/p>\n\n\n\n

I, for one, <\/span>am in favor of<\/span> cutting the military budget substantially, but that\u2019s a bit beside the point here. As historian Niall Ferguson <\/span>points out<\/span><\/a> in Bloomberg: <\/span><\/p>\n\n\n\n

\u201cAny great power that spends more on debt service (interest payments on the national debt) than <\/span>on<\/span> defense will not stay great for <\/span>very<\/span> long.<\/span> True of Hapsburg Spain, true of ancien r\u00e9gime France, true of the Ottoman Empire, true of the British Empire, this law is about to be put to the test by the U.S. beginning this very year.\u201d<\/span><\/em><\/p>\n\n\n\n

Unfortunately, the piper may <\/span>come calling<\/span> sooner than we all would have hoped. <\/span>New spending programs (and tax cuts, for that matter) are likely to exacerbate this problem all the more, which will have significant ramifications for <\/span>not just<\/span> the real estate industry <\/span>but the economy as a whole<\/span>.<\/span> <\/span><\/p>\n\n\n\n

Neither <\/span>Harris nor Trump<\/span><\/a> seem to be taking this issue seriously.<\/span><\/p>\n\n\n\n

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\n \"\"\n <\/div>\n <\/div>\n<\/div>","protected":false},"excerpt":{"rendered":"

Andrew Syrios gives his analysis of the impact of Vice President Harris’s economic plans on the real estate industry, if she’s elected president this November.<\/p>\n","protected":false},"author":1689,"featured_media":176819,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[4433],"tags":[],"class_list":["post-176813","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-opinion"],"acf":[],"comment_count":0,"_links":{"self":[{"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/posts\/176813","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/users\/1689"}],"replies":[{"embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/comments?post=176813"}],"version-history":[{"count":0,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/posts\/176813\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/media\/176819"}],"wp:attachment":[{"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/media?parent=176813"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/categories?post=176813"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/tags?post=176813"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}