Biden lays out plan to lower housing costs ahead of State of the Union, but effort draws criticism

By Aarthi Swaminathan

"Too many working families feel left out of homeownership," says Biden administration

The Biden administration on Thursday unveiled its plan to support homebuyers and renters, including lowering the cost of buying a home and cracking down on junk rental rates. But critics say it will worsen the housing crisis.

The 10-point plan, which was released ahead of the president's State of the Union address, aims to address housing affordability for both aspiring homeowners and renters.

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The proposals could face a difficult path to enactment, given that the Republican-controlled House may oppose the Democratic administration's priorities in an election year.

Housing affordability is under pressure as buyers face prices rising faster than wages. In January, home prices rose 5.1% compared to a year earlier, while wages only grew 4.5%.

"For many Americans, owning a home is the cornerstone to raising a family, building wealth, and joining the middle class," the White House said in a statement.

"Too many working families feel excluded from home ownership and cannot compete with investors for a limited supply of affordable homes for sale," he added.

Early criticism of Biden's housing plan noted that the proposals could only increase demand without significantly addressing the supply of homes for sale, which would only exacerbate how unaffordable housing is becoming.

"It is truly surprising how little the Biden administration seems to understand housing markets; almost everything they have proposed increases demand and ultimately does little for housing affordability," wrote the former director of the Federal Agency for Housing. Housing Finance, Mark Calabria, on X, formerly known as Twitter.

"For many years, the housing market has been undersupplied... and that problem has been exacerbated by the low interest rates we had during the pandemic... which has now frozen people out," Ed Pinto, senior researcher and co-director of the American Enterprise Institute's housing center told MarketWatch.

"The solution is to build more housing, but the federal government has a terrible track record of doing so in a sustainable and scalable way," he added. Focusing on zoning requirements would be a better route, Pinto said.

Here are the highlights of Biden's housing plan, which the president is expected to discuss during the State of the Union address:

$10,000 tax credit for middle-class homebuyers

The president asked Congress to pass a mortgage relief credit that would give middle-class first-time homebuyers an annual tax credit of $5,000 a year for two years.

The White House said doing so would effectively lower a homeowner's mortgage rate by more than 1.5 percentage points over two years on a median-priced home. The 30-year mortgage rate averaged 6.88% on Thursday, according to Freddie Mac.

"On a $400,000 home loan, a one percentage point decrease in mortgage rates can lead to a $250 drop in the typical monthly payment," Lisa Sturtevant, chief economist at Bright MLS, previously said.

The tax credit could help more than 3.5 million middle-class families buy their first home over the next two years, the White House said.

Pinto disagreed, saying that "this is not going to do anything except create more demand, which is going to raise prices."

$10,000 tax credit for middle-class families selling a starter home

Biden also called for "new credit" to unlock the inventory of affordable starter homes, aiming to alleviate the so-called lock-in effect that has frozen much of the housing market.

Homeowners are unwilling to sell their homes at rock-bottom mortgage rates and buy them at today's higher rates.

In the statement, Biden called on Congress to provide a one-year tax credit of up to $10,000 for middle-class families selling their first home.

The seller tax credit would help about 3 million families, the White House said.

The National Association of Realtors recently pushed for a tax credit to encourage older homeowners to sell their homes to people who would buy a primary residence.

Up to $25,000 in down payment assistance for first-generation homebuyers

Biden also called on Congress to provide up to $25,000 in down payment assistance to first-generation homebuyers.

The White House defined these buyers as families who had not been able to purchase homes, losing generational wealth.

The down payment assistance is expected to help about 400,000 families buy their first home, the White House said.

Reduce refinance closing costs by an average of $750

The Federal Housing Finance Agency has already approved policies and pilot programs to reduce mortgage refinancing closing costs for homeowners, the Biden administration said, including a pilot program to eliminate the lender's title insurance requirement in certain refinancings.

The pilot is expected to save thousands of homeowners up to $1,500, an average of $750, in upfront fees.

Consumer advocates praised the effort to address title insurance costs.

"It is encouraging to see the White House discussing possible reforms of the title insurance industry. Unnecessarily expensive title insurance has added to the upfront costs of purchasing a home, creating barriers for first-time homebuyers," he said Sharon Cornelissen, Director of Housing. at the Consumer Federation of America, she said in a statement.

"Excessive costs like this have no place in a housing market facing its worst affordability crisis in decades," he added.

The Consumer Financial Protection Bureau, the nation's top consumer watchdog, will also seek to "address anticompetitive closing costs imposed by lenders on homebuyers and homeowners," the White House said.

Expand the Low Income Housing Tax Credit

Biden also called for expanding the low-income housing tax credit that developers can take advantage of to help build or preserve 1.2 million more affordable rental units.

Additionally, the president called for a neighborhood housing tax credit, a new tax provision for building or renovating affordable homes for homeownership. This could lead to the construction or preservation of more than 400,000 starter homes in the US.

In Pinto's opinion, the LIHTC program is "expensive" and "ineffective."

"It's incredibly complex...and it doesn't increase supply," Pinto said.

$20 billion grant fund to build rental and starter housing

Biden unveiled a $20 billion competitive grant fund to support the construction of affordable rental and starter homes, which would reduce rents and housing costs.

The fund is included in the president's budget.

$3.79 billion from banks to build affordable housing

Biden also proposed that each federal mortgage lender double its annual contribution to the Affordable Housing Program.

That would raise an additional $3.79 billion for affordable housing over the next decade, to "support the financing, acquisition, construction and rehabilitation of affordable housing for rental and sale, as well as to help low- and moderate-income homeowners purchase or rehabilitate homes," the White House said.

That would help nearly 380,000 households, according to the White House.

Fight against excessive rent increases by landlords

Biden also said he was taking steps to address rent increases across the country by corporate landlords and private equity firms.

Referencing recent lawsuits in which large landlords were accused of fixing market rent prices, the Biden administration said it was convening an interagency task force "to root out and stop illegal corporate behavior that drives up rent prices." American families through anti-competitive, unfair, deceptive or fraudulent business practices."

On March 1, the Federal Trade Commission and the Department of Justice filed a joint legal brief saying that price fixing through an algorithm is still price fixing and effectively leads to owners and property managers illegally colluding. on prices to increase rents.

Target junk rates on rental housing

The Biden administration also recently announced the creation of an interagency group to address price gouging, which also has in mind rent increases and other practices that involve junk fees on rental housing.

Junk fees on rental housing run the gamut, from application fees to pet fees to move-in or move-out fees. A recent estimate from the Council of Economic Advisers estimated that renters paid $276 million in apartment application fees in 2023.

"And that's just one category of fees," Ariel Nelson, an attorney with the National Consumer Law Center, told MarketWatch. "So I think they're just starting to understand how high these home rental rates are."

Junk fees can also become part of a tenant's debt, Nelson added, which could lead to debt collectors going after tenants. That would also affect your credit score and, in turn, your ability to rent another home or buy one.

"These junk fees...can become a barrier to people getting housing in the future," Nelson said.

Provide rental assistance to more than 500,000 households

Lastly, Biden also called on Congress to further expand rental assistance to more than half a million households.

That would be accomplished by providing a guarantee voucher for low-income veterans, as well as aging youth who are no longer in foster care, saving them hundreds of dollars in rent each month, the White House said.

-Aarthi Swaminathan

This content was created by MarketWatch, operated by Dow Jones & Co. MarketWatch is published independently of Dow Jones Newswires and The Wall Street Journal.

 

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03-07-24 1754ET

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