What Trump and Harris say they'll do to fix the high cost of housing - and what's worked in the past

By Aarthi Swaminathan

Housing experts weigh in on Trump's and Harris's proposed policies to fix the housing crisis

The high cost of housing is a top economic issue that both U.S. presidential candidates have vowed to address, but which ideas are realistic and which have little to no chance of materializing - or are, in other words, empty promises?

MarketWatch spoke to multiple housing experts to get their assessment of Kamala Harris's and Donald Trump's housing proposals.

Presidents have little direct impact on home prices and mortgage rates, but some have played significant roles in shaping policies that affect home buyers and sellers.

One example is Franklin D. Roosevelt. During the Great Depression, as foreclosure rates soared, he stepped in with his New Deal, which ushered in the era of the fixed-rate mortgage. This new style of home loan was initially set for 15 years, and later extended to 30 years. Today it's the standard borrowing tool for home buyers.

Other presidents have been tasked with bringing the housing market back from collapse. President Barack Obama helped steer the nation out of a deep recession caused in part by subprime mortgage lending, which led to the collapse of the real-estate industry and left millions of homeowners in foreclosure.

Fast forward to 2024, when soaring rents and home prices have left many Americans shut out of the dream of home ownership.

Housing is an important issue for younger voters in this election, according to surveys by the real-estate brokerage Redfin and Harvard's Kennedy School.

Both the Democrat and Republican candidates, Kamala Harris and Donald Trump, have proposed a variety of ways to address the cost of housing either through demand-side measures, such as offering home buyers money upfront to help them buy homes, or through supply-side measures, such as providing incentives for builders to build more houses.

But how many of these proposals could realistically change the housing market?

The problem when it comes to the housing crisis is that there are so many factors - from NIMBYism to complicated building codes - that need to be addressed to allow builders to construct more units, be it single-family homes or apartment buildings.

"People need to understand what those challenges are at the local government level and state level, and help coordinate around them," Shamus Roller, executive director at the National Housing Law Project, a left-of-center housing advocacy group, told MarketWatch.

"People need to understand what those challenges are at the local government level and state level, and help coordinate around them."Shamus Roller, executive director at the National Housing Law Project

"And we need leadership from the federal government to call those things out, to give them nudges," he added.

Here are a few of Harris and Trump's proposed policies with examples of how they've been implemented in the U.S. or in other parts of the world.

To address high housing costs, Kamala Harris is proposing ...

Offering home buyers money to help buy their first home

Harris's plan: Provide up to $25,000 in down-payment support for first-time home buyers, as well as a $10,000 tax credit. Her campaign said it has not specified any income limits for now.

Has it been done before? Yes.

During the Great Recession, in November 2009, Congress approved a proposal to allow home buyers who purchased a home in 2008, 2009 or 2010 to take advantage of a first-time homebuyer credit. The $8,000 tax credit was available to first-time home buyers who purchased homes before May 1, 2010.

The credit phased out for individual taxpayers who earned more than $125,000 and joint filers with incomes over $225,000. The White House later said that more than 2.5 million American families had used this credit to purchase their first homes, at a time when the housing market was seeing rock-bottom home sales and a collapse in home prices.

Unintended consequences: One problem with the program was that fraudsters took advantage of it, albeit at a small scale. For instance, nearly 1,300 prison inmates claimed the tax credit and received fraudulent refunds totaling $9.1 million, according to a U.S. Treasury report in June 2010. The IRS said at the time that the fraudulent claims represented less than half a percent of all claims.

Nonetheless, the government had handed out $18.7 billion in tax credits to more than 2.6 million people, as of April 2010. The program "played a critical role in stabilizing the hard-hit housing market," a Treasury official told MarketWatch at the time.

Providing home buyers with subsidies could also increase demand and thereby raise home prices, particularly during a time when the housing market is still competitive, according to several economists who spoke to ABC. With some housing markets still seeing scenarios where homes listed for sale get multiple offers, $25,000 in grants could pressure home prices upwards, they said.

A German economist who has studied the impact of government subsidies on home prices agreed. In a paper published in 2022, economist Carla Krolage found that when a new government subsidy scheme was introduced in the German state of Bavaria in 2018, prices of single-family homes increased by around 10,000 euros more than in neighboring areas.

The plan differed slightly from Harris's because the subsidies went to all home buyers, not just first-timers, but Krolage told MarketWatch that she expected Harris's proposal to "also raise home prices and redistribute part of the benefits to sellers, but to a lesser extent than the Bavarian scheme."

The Obama-era programs also impacted home prices. The first-time home buyer credit "slowed the process of deflating the bubble" and "many homes were sold at higher prices than would otherwise have been the case," Dean Baker at the Center for Economic and Policy Research, a D.C.-based left-of-center think tank, wrote in 2012.

"The fact that the first-time homebuyer credit would have the effect of luring millions of homebuyers into paying too much for a home should not have been a surprise," Baker added. Baker did not respond to a request for comment about Harris's proposal.

Ed Pinto, a senior fellow at the conservative-leaning American Enterprise Institute, told MarketWatch that he believed the down-payment assistance proposed by Harris would only drive up the cost of housing even further. An extra $25,000 "will drive up the price of the homes tremendously, negating the benefit of the down payment assistance," Pinto said. In his opinion, the $25,000 down-payment assistance proposal "is wrong on every level."

The bottom line: The fact that Harris has an affordable-housing strategy is a big deal, David Dworkin, president and chief executive of the National Housing Conference, a left-of-center-leaning nonprofit advocacy group, told MarketWatch.

"I can't remember a time in history, frankly, when a campaign has had such a comprehensive plan, and that distinguishes it on its own, and it speaks to the scope of the crisis," he added, as housing affordability has become an issue that both Democrats and Republicans are motivated to fix.

"I can't remember a time in history, frankly, when a campaign has had such a comprehensive plan, and that distinguishes it on its own, and it speaks to the scope of the crisis."David Dworkin, president and chief executive of the National Housing Conference, on Kamala Harris' housing plan

Dworkin also pushed back on the argument that a subsidy or a grant would push up home prices. Many states already have programs that offer down-payment assistance, so "we don't have to reinvent the wheel," Dworkin added. "If down-payment assistance is targeted and then matched with investments in [housing] supply, then it is not going to be inflationary."

Offering tax incentives to builders to build more starter homes

Harris's plan: Offer a "first-ever" new tax incentive for builders to encourage them to construct starter homes and expand an existing tax incentive for builders to build affordable rental housing.

Has it been done before? To some extent.

The tax incentive to encourage builders to construct starter homes would "complement" another proposal in the Neighborhood Homes Investment Act, according to the Harris campaign.

That piece of federal legislation, introduced by a bipartisan group of U.S. Senators led by Democrat Ben Cardin from Maryland, also encourages investment in stagnating and distressed neighborhoods by offering a federal tax credit to private investment dollars to build and rehabilitate owner-occupied homes. The legislation is currently making its way through Congress, and has bipartisan support. Congress is also quickly running out of time as it only has a few more weeks in session until the end of the year.

The Neighborhood Homes Investment Act is unique in that it "addresses areas where housing costs are actually too low, rather than too high," Dworkin explained. In other words, it creates an economic incentive for people to buy homes that were valued so low that the cost of repairs and rebuilding would have been more expensive.

"Those neighborhoods get stuck in a kind of housing purgatory," Dworkin said, so the tax credit would spur more people to buy such homes and fix them up, which would add more housing stock for first-time buyers down the line.

The government has also long offered a Low Income Housing Tax Credit, created in 1986. It gives state and local agencies billions of dollars to issue tax credits to build and renovate rental housing for lower-income households. The Harris campaign is planning to expand it further, to help address high rent costs.

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