On Housing & Inflation

Terry H. Schwadron

May 19, 2022

It was with a mix of practical arrangements, political salesmanship and aspirational Congressional approval that Joe Biden announced a set of housing proposals this week that the White House said was aimed at stemming inflationary prices – what Biden has identified as his top domestic agenda item.

Taken together, the plan outlined as a Housing Supply Action Plan combines ideas about assuring rental assistance, helping with down payments and streamlining finance and approvals for adding upwards of a million new homes out of the notion that adding housing units eventually will lower costs. Much of it has been around before.

Reports on U.S. home prices, which usually lag by a couple of months,  have continued to surge higher. One key national home price index reported 19% average year-to-year housing rate increases in February. Housing costs make up about one-third of the market basket for inflation, as measured by the Consumer Price Index,” the White House said.

The Biden plan favors communities where local officials are moving to align zoning for
pre-fab “manufactured housing” and more small, multifamily units over the next five year. Overall, the plan rehashes what Biden has recommended in earlier omnibus spending bills – bills that did not survive in Congress, or that uses approved money from infrastructure bills and a more aggressive approach by the quasi-governmental agencies like Fannie Mae or new money that would require congressional approval.

Like most government programs to deal with inflation and high prices, the plan would require upfront investment and take time for results to ripple through communities across the country. It may sound better on paper to be Doing Something, but the likelihood is that even if all aspects of the plan advanced, high prices will be with us for a good chunk of time.

Money, Assistance and Tax Credits

Some housing policy is about building, some is about finance. Some is about assuring help for those with the greatest need. What makes this program different is its breadth across government jurisdiction, its reliance on cooperation with private industry and local officials, and its timing with public anger over inflation – just before another election.

Indeed, even as the White House was announcing its plan, Housing and Urban Development Secretary Marcia Fudge and Commerce Secretary Gina Raimondo were in Columbus, Ohio, with Sen. Sherrod Brown and Rep. Joyce Beatty, both Ohio Democrats to create a local event of address supply chain disruptions for building materials with industry leaders. The idea is to finish construction in 2022 on the most new homes in any year since 2006.

In other words, these perceived answers to inflation come wrapped in political presentation.

The legislative moves that will require congressional approval, include tax credits for low- and middle-income home buyers and a proposed $25 billion for grants for affordable housing production. It also includes pressing legislators to pass an Unlocking Possibilities Program, which remains pending in the split Senate, to establish a $1.75 billion grant program through HUD. Biden’s 2023 budget request, which has yet to pass, also includes a proposal for $10 billion in HUD grants to increase accessibility to affordable housing.

Among the measures detailed as part of the plan are using new financing mechanisms to build and preserve more housing where there are financing gaps and expanding federal financing by making certain loans more widely available for multifamily developments.

The plan also includes steps to ensure government-owned housing goes to owners who will live in the dwellings, or nonprofits who will rehab the buildings, rather than large investment firms that may neglect the properties. Those behind the plans have expressed concern about housing being treated as investment rather than places for people to live.

What Alternatives?

Republicans have offered few housing programs, but generally have opposed the notion that further investment by government is healthy for an already overheated economy.

Covid’s effects, lockdowns and delayed evictions have allowed a pent-up desire to raise rents and mortgages, and we are seeing the effects of oversized rent increases affect both individual families and small businesses.

The Biden approach is to ease the burden of housing costs over time, by boosting the supply of quality housing in a comprehensive fashion. The White House statements say the goal is help renters who are struggling with high rental costs, with a focus on building and preserving rental housing for low- and moderate-income families, as well as provide more new housing.

You can reject it, but finding alternative plans seems difficult and not less expensive. What is happening is that large commercial firms are taking over more housing and pushing for profit. The single home is still favored over multifamily homes, even as energy prices are making that choice more expensive and putting more pressure on climate concerns. Clearly, people who do not own property are at an increasing disadvantage, including working and lower-middle class people.

Biden argues that today’s rising housing costs have been years in the making.  Fewer new homes were built in last decade since the 1960s, constraining housing supply and failing to keep pace with demand. Land for development has become less available and less affordable, driven by local laws that limit housing density. The plan does encourage single and multifamily homes in general in more rural areas.

In theory, the plan calls for rewarding communities that are reconsidering density limits and linking development to transportation projects; that thinking is at odds with a Congress that favors rural and suburban America over its cities. In theory, the plan suggests that housing, especially in times of inflation, is a bipartisan issue; that is at odds with a time of increased political divide, particularly towards government spending and involvement in the marketplace.

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Watching Gas Prices: We’re hearing plenty about how prices are once again reported rising at the gas pump, no doubt angering more U.S. voters as prices over $4 a gallon spread to the Midwest and South. What has not been as publicized is a lean by the oil industry to spend more refining effort right now on processing diesel and jet fuels rather than general auto use – just as we enter the heavy summer driving season.

Amid the anger aimed at the White House, perhaps we should be asking oil execs just why these decisions come about along with the effects at the pump.

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