The Election is Over - What's Next for Housing?
It has been an interesting few days, weeks, months, and even years leading up to the election this week. Depending on whether you have been cheering for team red or blue, you may be celebrating, welcoming in a new era, a bit bewildered, or even accepting and looking ahead.
As a real estate professional and steward of homebuilders in this country, my first inclination when anyone is running for any office that has an impact on housing is to determine what their mission is pertaining to it. Housing is currently flirting with a shortage of 5 million homes nationally and is one of our biggest issues that affects cost of living, the economy (as people have less to spend on purchases when there is so much tied up in a house payment), homelessness, security for seniors, and prosperity.
When it looked like it would be a Harris-Trump matchup, I took a hard look at their proposed housing policies. Both agreed that increasing the supply of housing is at a critical point and have ideas for how to ease the burden on housing supply.
I am going to briefly summarize their plans and provide my thoughts regarding what I think needs to be done in the years ahead.
Harris's Policies
Harris focused on increasing the supply of housing by encouraging the building of 3 million housing units. This would help reduce the deficit of 5 million homes that don't currently exist that we need. To do that, her primary method was to expand existing tax credits to make it easier for builders to build affordable and rental housing.
She also proposed a $40 billion fund for innovations in housing construction, affordable home design, and creative financing.
Another goal of hers was to take a look at existing regulation that is limiting construction, although most zoning, permits, and regulation is at the state and local level. That being said, there are currently limitations in terms of financing that is determined at the federal level that can be reconfigured to allow for more middle housing construction. She has indicated that some of her targets would have been reducing red tape for transit-oriented development and office-to-residential conversions.
She also proposed $25,000 in down payment assistance for first-time homebuyers. Although this doesn't actually increase supply - it may make housing more affordable. But without the additional supply of housing, this increased demand may actually cause prices to rise in excess of that $25,000.
Trump's Policies
One of the ways Trump has proposed to reallocate housing supply is to decrease demand by limiting immigration or deporting illegal aliens who are here now. The impact of this policy is not yet clear, and there is concern regarding how a massive deportation will affect the building industry which is already suffering from labor and skill shortages. According to REALTOR.com, a third of the housing market labor force is foreign-born.
Another way he may achieve this is by limiting mortgage access for undocumented immigrants.
He also supports opening more federal lands for housing - both he and Harris supported the idea of utilizing public lands for this purpose. Trump's plan calls for “ultralow tax and ultralow regulation” in order to support large scale housing construction. Trying to match up available public lands with areas of demand is something I foresee as a challenge. According to REALTOR.com, “the federal government owns about 27% of the total land area, but much of that land is located in the Western U.S.” Much of this land is in remote areas. However, I have high hopes that there are areas where this could have a good impact on our housing supply although not quickly as both politicians implied. Infrastructure may take a long time to install. Furthermore, in Washington State, we are hampered by Growth Management Act which curtails density. Even if federal and public lands were opened up, if they were not in areas that each county had slated for development, development would only occur at rural levels. This is a good long-range plan, but not something that will affect us now and even in the next few years.
In addition, he supports removing regulations and permit requirements that drive up the cost of housing, including environmental and safety regulations. The National Association of Homebuilders indicate that nationally, site and building permit fees account for approximately 7.4% of an average new-home cost. However, this will be limited for the same reasons Harris' plan would be - much of permitting and regulation exists at the state and local levels.
In Trump's previous term in office, he created an executive order to create the White House Council on Eliminating Barriers to Affordable Housing Development - the results from this Council could impact future policy. Two points from this have emerged which include changing the affordable housing environmental review process and changes to manufactured home regulations.
Bringing down mortgage rates is another focus of his. Although it is not yet clear how this will be manipulated, this would assist with both general housing costs with resale and in making it more affordable to build.
Trump's platform also calls for tax incentives and support for first-time buyers. It may include tax deductions for mortgage interest, mortgage insurance, or tax credits. But similar to Harris' plan, this may actually result in driving up demand, increasing prices, and essentially erasing this benefit.
Denise's Soapbox (My Top 5)
I was very glad to see that both candidates made housing a priority and I hope the new Trump administration will continue to do so. We have such a deficit of housing which impacts so many other facets of the economy that we need a focused, multi-faceted approach. There are elements of both plans that I believe will help fix what is broken with our housing supply. If I could sit down with President Trump and lay out a plan for fixing the housing shortage, these would be my Top 5:
#1 Remove Barriers that Cause Delays to Getting Initial Approval
There is too much policy and regulation red tape that exists at the state and local levels. This is a national problem and therefore needs a national solution. We don't need to pay a non-profit firm or an internal watch crew to figure this out. There needs to be a state mandate - with consequences - on permitting and processing timelines. Most delays are caused by one or more of these three things:
- Lack of permit technicians, planners, and people in the building department OR existing personnel have not dedicated enough time to processing permits (existing personnel are wearing too many hats).
- Permit approval process is too segmented and each segment takes too much time - need to streamline.
- Too many special reports or studies are needed on properties.
Local government needs to understand how much delays cost every step of the way. This is just one of the reasons the cost of building has gone up - builder carrying costs. Now with interest rates higher, these costs are going to hamper how much risk our builders are willing to take on unless these can be limited.
#2 Remove Costly and Excessive Regulation Causing Barriers to Housing
We live in an exciting time when it comes to housing product innovations. When I am at the International Building Show, I am wowed by all the ways people in other countries are developing products that will help in the construction process or result in a better product for the consumer. However, regulation and red tape keep some of those innovations from coming to the US. We have to get out of our own way.
Additionally, regulation caused by the new energy code, tree ordinances, critical areas ordinances, and more, are driving up the cost of housing - and causing delays that drive up housing costs. We can't keep adding to the Builder Burden - we have to get these under control or perhaps put a pause on some of them - people are in the streets and suffering while we are out measuring tree trunks. Come on, people!
#3 Analyze ALL Government-Mandated Fees Around Housing
My permitting fees have increased an astounding 25% over the last couple of years WITHOUT the benefit of a more-predictable, more-expedient processing timeline. In fact, it has gotten exponentially WORSE. Builders need relief! We can't keep passing these exorbitant fees along to buyers, but we don't have a choice.
According to the Building Industry Association of Washington, it costs approximately $200,000 more to build a home in Washington State than elsewhere due to #1, #2, and #3. Those are costs that builders either have to eat or that get passed along to the buyer. No wonder we can't get enough housing built!
#4 Pre-Approved Plans for Infill Lots
This includes ADUs, DADUs, and small Single Family Residential plans. If a buyer or a builder knows they don't have to wade through the permitting process for the build, there is a lot more certainty in terms of build costs, carrying costs, and build timelines. We must do what we can to eliminate uncertainty and one way we can do that is through pre-approved plans. These plans may be altered for décor like a gingerbread house - the structure is the same, but perhaps the siding and colors can change.
For example, in Washington State, modular and manufactured homes are approved at the state level which essentially means they can be placed anywhere. There is no local permitting that needs to be done on the build, just the land. This same principle can be applied at each state level with federal funding.
NOTE: The above four issues are state and local in nature. But the federal government can provide a mandate and funds to address the issue. For example, the federal government could roll out a program with funding attached, tax incentives, or a combination thereof with stipulations that the fees be used to implement the above objectives. Harris had proposed $40 billion to look at ways to cut costs and improve processes. Something like this could work to achieve the above.
Also, we need to expand tax credits and incentives. All types of housing are needed - permanent supportive housing, partially-supported housing, workforce housing, and luxury homes. It makes sense to provide some sort of sliding scale depending on the type of housing needed per area. For example, King County needs over 300,000 housing units built over the next 20 years and the Washington State Department of Commerce has indicated how much of each economic category is needed. It wouldn't be difficult to create a system of tracking these and once we hit the numbers, that tax credit or incentive goes away.
#5 Institute a Government-Funded Builder Loan Program
Builders have to fight to get money for their projects at market which drives up costs. However, if a lower-interest and lower-fee program were available, builders could build more and housing would be less-expensive.
I have plenty more to say on how the federal government can prioritize housing supply, but the publication timeline is getting too close. So, it will have to wait. But no worries! I have plenty more to say at my upcoming State of the Market class which I am pleased to announce!
Sources
- [NPR] Trump-Harris Housing Costs Plan
- [Realtor] Donald Trump Will Return to the White House: What His Presidency Means for the Housing Market
- [Bi-Partisan Policy] Comparing the Housing Proposals of the 2024 Presidential Campaigns
- [NowBam.com] What a Trump Presidency Means for Housing
The impact of elections is just one of many more important things impacting our industry that I will be covering in more detail at my upcoming 2025 State of the Market. Here are a few other topics I will be covering:
- How will a new administration handle our housing shortage?
- How will mortgage rates contend with the economy?
- What changes can we expect to see with inventory and buyer demand?
- How will our comprehensive plans and new housing legislation shape our markets?
- How will availability of rentals, a hot legislative topic, impact our market?
- What must agents know about second-home and other opportunity markets?
- What opportunities are ahead for brokers, builders, and developers?
This year's State of the Market will be online, allowing you to tune-in from anywhere. We are also including 3.0 Washington State Clock Hours for all of you real estate brokers. I hope to see you at State of the Market!
Get your ticket today!
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By Denise Lones CSP, CMP, M.I.R.M.
The founding partner of The Lones Group, Denise Lones has over three decades of experience in the real estate industry. With agent/broker coaching, expertise in branding, lead generation, strategic marketing, business analysis, new home project planning, product development and more, Denise is nationally recognized as the source for all things real estate. With a passion for improvement, Denise has helped thousands of real estate agents, brokers, and managers build their business to unprecedented levels of success, while helping them maintain balance and quality of life.
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