Editors at National Review Online explain how President Biden’s housing proposal would make current conditions worse.
During the pandemic, rock-bottom interest rates and a desire for more space drove a rapid and stunning rise in housing prices. While prices have moderated from their peak, they have not done so nearly enough to make up for the more than doubling of borrowing costs. President Biden says he has a solution, but like most forms of government interference, it would only make the problem worse.
During the State of the Union address, Biden unveiled a plan to give homebuyers $400 per month for mortgage payments over the next two years “as mortgage rates come down.” It didn’t take long for most people with a basic understanding of economics or an ounce of common sense to recognize that government subsidies — especially during a time of falling interest rates — would lead to more demand and, thus, even higher housing prices.
No problem, Biden now says — he has an idea to increase housing supply. Right now, one of the reasons why inventory is relatively scarce is that a lot of homeowners who locked in low-interest-rate mortgages for decades are reluctant to sell and be forced to purchase a new home with higher rates. In response, Biden wants to offer up to $10,000 per year in tax credits to those who sell their starter homes and purchase new homes with higher-rate mortgages. This, the theory goes, would help unlock inventory.
But — on top of the cost to other taxpayers — it would be a rotten deal for any homeowner to take Biden up on such a proposal.
To start with, the closing costs associated with selling and then buying a home (broker commissions, inspection and appraisal fees, loan-origination fees, etc.) would easily take up most if not all of that $10,000. But more importantly, increased housing payments would quickly exceed $10,000, and after that credit expires after the first year, the new homeowner would be drastically worse off.
