The Biden administration on Thursday laid out its plan to support home buyers and renters, which includes lowering the cost of purchasing a home and cracking down on rental junk fees. But critics say it’s going to worsen the housing crisis.
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The 10-point plan, which was released ahead of the president’s State of the Union address, aims to address housing affordability both for aspiring homeowners and renters.
Live updates: State of the Union 2024: Biden to push corporate tax hikes, propose home-buyer credit
The proposals could face a tough path to becoming enacted, given that the Republican-run House may oppose the Democratic administration’s priorities in an election year.
Housing affordability is strained, as home buyers contend with home prices that are rising faster than wages. In January, home prices were up 5.1% as compared to the previous year, while wages only grew 4.5%.
“For many Americans, owning a home is the cornerstone of raising a family, building wealth and joining the middle class,” the White House said in a statement.
“Too many working families feel locked out of homeownership and are unable to compete with investors for a limited supply of affordable for-sale homes,” it added.
Early criticisms of Biden’s housing plan pointed at how the proposals could only increase demand without meaningfully addressing the supply of homes for sale, which would only exacerbate how unaffordable housing is becoming.
“Truly stunning how little the Biden administration seems to understand housing markets, almost everything they’ve proposed increases demand, ultimately doing little for housing affordability,” former Federal Housing Finance Agency head Mark Calabria wrote on X, formerly known as Twitter.
“The housing market for many years has been undersupplied … and that problem has been compounded by the low interest rates that we had during the pandemic … that has now frozen people in place,” Ed Pinto, senior fellow and co-director of the housing center at the American Enterprise Institute, told MarketWatch.
“The solution is to build more housing, but the federal government has a terrible track record in doing this in a way that’s sustainable and scalable,” he added. Targeting zoning requirements would be a better route, Pinto said.
These 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 home buyers
The president called on Congress to pass a mortgage-relief credit that would give middle-class, first-time home buyers an annual tax credit of $5,000 a year for two years.
The White House said that doing so would in effect reduce a homeowner’s mortgage rate by more than 1.5 percentage points for two years on a median-priced home. The 30-year mortgage rate was averaging 6.88% as of Thursday, according to Freddie Mac.
“On a loan to purchase a $400,000 home, 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 over 3.5 million middle-class families buy their first home in the next two years, the White House said.
Pinto disagreed, saying, “this isn’t going to do anything for that 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 a “new credit” to unlock the inventory of affordable starter homes, aimed at easing the so-called lock-in effect that has frozen much of the real-estate market.
Homeowners are unwilling to sell their homes with rock-bottom mortgage rates and buy at the current, higher rates.
In the release, Biden called on Congress to provide a one-year tax credit of up to $10,000 for middle-class families selling their starter home.
The tax credit to sellers would help an estimated 3 million families, the White House said.
The National Association of Realtors recently pushed for a tax credit to encourage more long-tenured homeowners to sell their home to people who would buy a primary residence.
Up to $25,000 in down-payment assistance to first-generation home buyers
Biden also called on Congress to provide up to $25,000 in down-payment assistance to first-generation home buyers.
The White House defined these buyers as families who had not been able to buy homes, missing out on generational wealth.
The down-payment assistance would be expected to help an estimated 400,000 families buy their first home, the White House said.
Lowering closing costs for refinancing by an average of $750
The Federal Housing Finance Agency has already approved policies and pilot programs to reduce closing costs on mortgage refinancing for homeowners, the Biden administration said, including a pilot program to waive the requirement for lender’s title insurance on certain refinances.
The pilot is expected to save up to $1,500 for thousands of homeowners, 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 look at potential reforms of the title-insurance industry. Unnecessarily expensive title insurance has added to the upfront costs of buying a home, creating barriers for first-time homebuyers,” Sharon Cornelissen, director of housing at the Consumer Federation of America, said in a statement.
“Excessive costs like this have no place in a housing market that is facing its worst affordability crisis in decades,” she added.
The Consumer Financial Protection Bureau, the nation’s top consumer watchdog, will also look 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 on expanding the low-income-housing tax credit that developers can tap to help build or preserve 1.2 million more affordable rental units.
Additionally, the president called on a neighborhood homes tax credit, a new tax provision to build or renovate affordable homes for homeownership. That could lead to the construction or preservation of over 400,000 starter homes in the U.S.
In Pinto’s view, the LIHTC program is “expensive” and “ineffective.”
“It’s incredibly complex … and it doesn’t add supply,” Pinto said.
$20 billion grant fund to build rentals, starter homes
Biden unveiled a $20 billion competitive grant fund to support the construction of affordable rentals and starter homes, which would lower 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 Home Loan bank 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 rental and for-sale homes, as well as help low- and moderate-income homeowners to purchase or rehabilitate homes,” the White House said.
That would help nearly 380,000 households, according to the White House.
Targeting rent-gouging by landlords
Biden also said he was taking action to address rent hikes across the nation by corporate landlords and private-equity firms.
Referencing recent lawsuits where large landlords were accused of price-fixing the market rate of rent, the Biden administration said it was calling on an interagency task force “to root out and stop illegal corporate behavior that hikes prices on American families through anti-competitive, unfair, deceptive or fraudulent business practices.”
On March 1, the Federal Trade Commission and the Justice Department filed a joint legal brief that said that price fixing through an algorithm is still price fixing, and effectively leads to landlords and property managers illegally colluding on pricing to raise rents.
Targeting junk fees in rental housing
The Biden administration also recently announced the creation of an interagency group to address price gouging, which also has an eye on rent hikes and other practices that involve junk fees in rental housing.
Junk fees in rental housing span the gamut, from application fees to pet fees to move-in or move-out fees. A recent estimate by 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, a staff attorney at the National Consumer Law Center, told MarketWatch. “So I think they are just starting to grasp how big these rental housing fees are.”
Junk fees can also become part of a renter’s debt, Nelson added, which could result in tenants being pursued by debt collectors. That also would affect their credit score, and in turn, their ability to rent another home, or buy one.
“These junk fees … can become a barrier to people getting future housing,” Nelson said.
Providing rental assistance for over 500,000 households
Lastly, Biden also called on Congress to further expand rental assistance to more than half a million households.
That would be through providing a voucher guarantee for low-income veterans as well as youth aging out of foster care, which would save them hundreds of dollars in rent each month, the White House said.
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