[UNITED STATES] The American dream of homeownership has become increasingly elusive for many, with housing costs skyrocketing and inventory shortages plaguing markets across the nation. As President-elect Donald Trump prepares to take office, his proposed housing policies have garnered significant attention from economists, industry leaders, and potential homebuyers alike. While some of his plans show promise in addressing the housing crisis, others raise concerns about potential negative impacts on affordability and accessibility.
In this comprehensive analysis, we'll explore the four ways Trump's housing plans could potentially hurt homebuyers and the three ways they might offer relief in the challenging real estate market of 2024 and beyond.
The Housing Market Landscape
Before delving into the specifics of Trump's proposals, it's crucial to understand the current state of the housing market. The United States is grappling with a severe shortage of homes, which has been a primary driver of inflated housing costs. This scarcity has contributed significantly to overall inflation, with housing expenses accounting for approximately two-thirds of the inflation rate over the past year.
The National Association of Realtors reported a staggering shortage of 4 million homes by mid-2023, underscoring the magnitude of the supply-demand imbalance. This deficit has led to fierce competition among buyers, driving up prices and making homeownership increasingly unattainable for many Americans.
4 Potential Pitfalls in Trump's Housing Plans
1. Tariffs and Increased Building Costs
One of the most contentious aspects of Trump's economic policy is his proposal to impose substantial tariffs on imported goods. The president-elect has suggested implementing a 60% tax on products from China and 10-20% tariffs on most other foreign imports. While intended to bolster domestic industries, these tariffs could have unintended consequences for the housing market.
Impact on Construction Materials: Key building materials such as lumber and steel would be subject to these tariffs, potentially driving up the cost of home construction significantly. Jim Tobin, CEO of the National Association of Home Builders, warns, "If there are huge tariffs getting thrown around, that really hurts home builders". The ripple effect could extend to other essential components like air conditioning units and garage doors, further inflating the overall cost of new homes.
Price Inflation: As construction costs rise due to tariffs, developers may be forced to pass these expenses on to consumers, resulting in higher home prices. This could exacerbate the already challenging affordability crisis, pushing homeownership further out of reach for many Americans.
2. Immigration Policies and Labor Shortages
Trump's stance on immigration, particularly his proposal for mass deportations, could have far-reaching implications for the housing market. While the Trump-Vance campaign argues that reducing immigration would alleviate housing demand and improve affordability, many economists and industry experts disagree.
Construction Workforce Disruption: The construction industry heavily relies on immigrant labor, with immigrants comprising about a quarter of the workforce. An estimated 15-23% of construction workers are undocumented immigrants. Mass deportations could severely disrupt the labor market, exacerbating existing worker shortages.
Jim Tobin emphasizes this concern, stating, "Just even the talk of mass deportations could send a chill through the entire immigrant employment sector. Anything that constricts labor in the country will have an impact on us meeting those housing goals over the next few years".
Increased Labor Costs: With fewer workers available, construction companies may face higher labor costs, which could be passed on to homebuyers in the form of increased home prices. This could counteract any potential benefits from reduced housing demand due to lower immigration.
3. Potential Cuts to Federal Housing Assistance
During his previous term, Trump consistently proposed significant reductions in housing assistance programs for low-income households and individuals with disabilities. These proposals included cutting funding for rental and homeownership assistance programs, as well as raising rent for low-income households receiving federal aid.
Impact on Affordable Housing: If similar cuts are pursued in his upcoming term, it could severely impact the ability of lower-income Americans to afford housing. Additionally, reduced funding for programs that support the construction and renovation of affordable housing could slow down the development of much-needed affordable units.
Widening Housing Gap: Such policies could potentially widen the housing affordability gap, making it even more challenging for vulnerable populations to secure stable housing or transition into homeownership.
4. Inflationary Pressures and Interest Rates
While Trump has pledged to lower mortgage rates, his economic policies could have the opposite effect. The combination of tax cuts, increased tariffs, and mass deportations could create inflationary pressures in the economy.
Federal Reserve Constraints: These inflationary effects might discourage the Federal Reserve from further cutting interest rates, potentially keeping mortgage rates higher than desired. This could limit the purchasing power of potential homebuyers and slow down the real estate market.
Market Volatility: The uncertainty surrounding these policies could lead to market volatility, affecting consumer confidence and potentially deterring some buyers from entering the housing market.
3 Ways Trump's Plans Could Help Homebuyers
Despite the potential challenges, some aspects of Trump's housing agenda show promise in addressing the current crisis:
1. Deregulation of Construction Industry
Trump has pledged to reduce federal regulations that increase the cost of home building, with an ambitious goal of cutting new home costs by half. While state and local regulations play a significant role in housing costs, federal deregulation could still have a positive impact.
Streamlining Construction Processes: Jim Tobin of the National Association of Home Builders suggests that rolling back some of the Biden administration's energy efficiency requirements and streamlining regulations under the Clean Water Act could help reduce construction costs.
Potential for Increased Supply: By reducing regulatory burdens, developers may be able to build homes more quickly and cost-effectively, potentially increasing the overall housing supply and helping to alleviate the current shortage.
2. Utilizing Federal Land for Housing Development
Trump's proposal to build "freedom cities" on federal land has garnered bipartisan support and could significantly impact housing supply, particularly in Western states with large tracts of federally owned land.
Increasing Housing Stock: By opening up federal land for development, this initiative could lead to the creation of new communities and a substantial increase in housing stock, potentially easing supply constraints in certain regions.
Affordable Housing Opportunities: Maurice Page, executive director of the Nevada Housing Coalition, notes, "Building towards affordable housing on these lands could have a transformative impact, especially because land costs are a major barrier".
3. Focus on Energy Costs
Vice President-elect JD Vance has emphasized the administration's commitment to reducing energy costs through increased domestic oil production. While the direct impact on housing affordability may be limited, lower energy costs could provide some relief to homebuilders and, by extension, homebuyers.
Indirect Cost Savings: Reduced energy expenses could marginally lower construction costs, potentially translating to slightly more affordable homes. However, as Anirban Basu, chief economist at Associated Builders and Contractors, points out, "Energy prices are significant, but they're not as significant as many other inputs".
President-elect Trump's housing plans present a mixed bag of potential outcomes for homebuyers. While some proposals, such as deregulation and the utilization of federal land, show promise in addressing the housing shortage, others, like tariffs and immigration policies, could exacerbate affordability issues.
The ultimate impact on housing costs will largely depend on how effectively these policies can increase the supply of homes to meet the overwhelming demand. As the nation grapples with a persistent housing crisis, it's clear that a multifaceted approach will be necessary to create a more accessible and affordable housing market for all Americans.
As we move forward, it will be crucial for policymakers, industry leaders, and communities to work together to navigate these complex issues and find sustainable solutions that balance economic growth with housing affordability and accessibility.
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