My friend and author of Real Estate Decoded John Wake asked me why increasing the US homeownership rate in the US is so difficult. And why Joe Biden’s plan for homeownership is bad news.
First, the US Homeownership Rate fell from 2005 to 2016 before starting to rise again. It looks like the homeownership accelerator effect from The Fed’s monetary easing started to kick in 2016 (also, the housing vacancies from the housing market crash have finally pretty much cleared the market).
Since Q1 2012, US home price growth has exceeded average hourly earnings with a small exception. It is difficult to increase homeownership when home prices are growing over twice as fast as average hourly earnings.
Two things that can be done to improved homeownership rates: 1) The Federal Reserve can takes it massive foot off the monetary accelerator which it leading to home price growth that is faster than wage growth and 2) increase wage growth.
Both of these possibilities are unlikely under Biden. First, Powell is unlikely to slow the monetary sugar pump. Second, Democrats are overly focused on a national minimum wage hike, not on raising wage growth for the population as a whole. Without wage growth, but with rising home prices, Biden will have to seek inferior, second-best solutions like … a $15,000 first-time homebuyer tax credit.
With the historic low in existing home sale inventory despite massive Federal Reserve monetary easing, it is hard to believe that Biden’s proposal will do anything but drive home prices into the stratosphere, making housing even MORE unaffordable.
How about taking away the tax advantages to rental property? Like the interest deduction and depreciation deductions? Unfortunately, these tax advantages to rental property owners have been a tool of Federal housing policy for decades and unlikely to be changed. HUD and the GSEs are fans of renting. But the tax breaks for multifamily property owners could be reduced by extending the depreciable life to, say, 50 years.
Are you ready … for an increasing the homeownership rate under Biden’s plans? Don’t count on it!