In a recent interview, Democratic presidential candidate Kamala Harris suggested solutions to the ongoing housing affordability crisis by proposing to lower home prices through increasing the housing supply. However, this perspective demonstrates a fundamental economic misunderstanding, as the root cause of high housing costs is not a deficiency in supply but rather the unaffordability of existing homes. Notably, there remains a housing surplus stemming from the construction boom during the housing bubble that burst in 2007, which directly contributed to the financial crisis. Following this period, the demand for housing did not keep pace with the supply of vacant homes, leading to a natural decrease in vacancy rates as the market adjusted toward equilibrium—an adjustment that some policymakers incorrectly interpret as a housing shortage.
The misconception that a housing shortage is to blame for high prices is intensified by the Federal Home Loan Mortgage Corporation (Freddie Mac), a government-sponsored enterprise. Established to enhance competition with Fannie Mae, Freddie Mac perpetuates the narrative that the subsequent market correction post-housing bubble is the real problem, rather than acknowledging the surplus of houses available. This misdiagnosis is further echoed by financial experts, government officials, and the mainstream media, who overlook the underlying causes of the previous housing bubble—namely government policies that promoted homeownership and the Federal Reserve’s artificial inflation of the money supply that kept interest rates low. Instead of recognizing these government interventions as contributors to housing unaffordability, politicians blame the market’s perceived failure.
Amid the fallout from the COVID-19 pandemic and preceding economic policies, housing supply dynamics continue to change. Homeowners are reluctant to sell due to the advantage of historically low mortgage rates, while high interest rates make new purchases less attractive. Coupled with the Federal Reserve’s monetary policies, which included creating trillions of dollars to mitigate the economic impacts of lockdowns, the housing market has witnessed significant price inflation. As a result, while lower interest rates lead to increased demand for housing, the cost of borrowing remains comparatively high, deterring potential buyers and keeping overall sales low. Despite recent fluctuations, the housing market remains “paralyzed” by high prices and lingering supply challenges, leaving home sales stagnant.
In her proposed housing plan, Harris seeks to incentivize home construction by calling for tax incentives and subsidies for rental housing development. However, this response appears contradictory, as it leans toward more government intervention to remedy issues that were initially exacerbated by government policies. While the intention may be to alleviate the burden of unaffordable housing, Harris’s plan overlooks the fact that the ability to buy homes is already constrained not solely by supply but also by increased prices and higher associated costs. The intention to “cut red tape” is vague, leaving questions about the actual impact on regulations governing new construction and potential compromises on safety and efficiency.
Harris further complicates her housing affordability measures by proposing down-payment assistance of up to $25,000 for first-time buyers, effectively inflating demand rather than directly addressing the underlying issue of housing prices. While the program is targeted at assisting responsible citizens who may find it difficult to save for a significant down payment, there is no exploration of how this demand-side support would reconcile with the existing supply-demand dynamics. Critics warn that this could exacerbate home prices, creating a contradiction in her approach that suggests more homes but simultaneously incentivizes greater competition for them through financial assistance. Housing experts predict that such well-meaning initiatives can inadvertently drive prices even higher, especially in historically competitive markets.
Ultimately, Harris’s plan seems reflective of a broader trend among politicians to blame the market instead of addressing the substantive issues arising from prior interventions. This misalignment persists, as public policy often uses economically uninformed rhetoric that suggests a lack of comprehension of fundamental supply and demand principles. Instead of acknowledging that past government actions, including central banking policies, have continuously led to price inflation and economic disparities, many policymakers, including Harris, push for new policies destined to fail while ignoring the realities of free-market principles. The historical implications of the housing bubble demonstrate a need for genuine recognition of how central planning complicates economic realities, reinforcing the belief that increased government intervention is not the answer to uncovering a path toward more affordable housing.
In summary, the persistence of unaffordable housing prices is largely attributable to historical government interventions that disrupted the natural equilibria of the housing market. Critics argue that proposed solutions, such as those advocated by Kamala Harris, fail to consider the critical role that market forces play in shaping economic outcomes. The illusion of a housing shortage overshadows the impacts of monetary policy and regulatory measures, and misguided solutions risk exacerbating existing disparities. The challenges of a recovering housing market reveal the complexities involved, emphasizing the pressing need for a public discourse grounded in economic realities instead of ideological frameworks that perpetuate ineffective policies. Without acknowledging the lessons of the past, the cycle of ineffective interventions is bound to repeat itself, perpetuating disenfranchisement and obstructing genuine economic freedom for many Americans.
