Grading the Harris/Walz Housing Plan: Winners and Losers

Sponsored by: Madera Residential

Vice President Kamala Harris revealed her housing plan this week, and as you’d expect, the reactions are all over the map. Some are gushing over it, and even a CRE industry publication fawningly declared “Kamala is going full YIMBY” in the subject line of its newsletter. Others are panning it as misdirected and inflationary.

So, what is it? As usual, the truth appears to be somewhere in the middle. Only a Pollyanna could conclude “Kamala is going full YIMBY,” while only a Debbie downer could conclude the Harris/Walz plan lacks any merit.

I’ll share three conclusions I drew from reading the campaign’s housing plan, and then I’ll detail how the plan would impact the key stakeholders: homebuyers and homebuilders, and renters and rental housing investors (separating SFR and apartments).

Three High-Level Takeaways

1. You can clearly discern both a) thoughtful policy proposals and b) unserious populous gimmicks in the outline shared with reporters. You can feel the tension between the campaign’s policy team and political team – one earnestly pushing for real progress in America, the other impishly plotting for applause lines at rallies. The challenge is that the two goals risk counteracting each other, particularly for the core mission of stimulating more housing supply.

2. The Harris/Walz plan could create more of certain types of under-supplied housing (for-sale starter homes and low-income affordable rental housing), but some of those gains might be offset (in terms of total housing) by reductions in single-family rental supply and slowed expansion in conventional apartment supply.  

3. The Harris/Walz plan creates likely winners (first-time homebuyers + builders of starter homes + small single-family rental investors) and likely losers (single-family renters + larger SFR investors), while giving others a mixed bag (multifamily renters and investors).

Let’s break down the likely winners and losers:

Likely Winners

First-time homebuyers

• The Harris/Walz plan would expand upon a previous Biden/Harris proposal by providing, “on average,” $25,000 in down-payment support for first-time homebuyers, with “more generous support for first-generation homeowners.”

• Critics argue that demand-side aid will only push up home prices, and they’re probably right. But even so, $25,000 is a sizable chunk of money – especially in lower-cost markets – that’ll give buyers a big boost. That’s a win for this group.

Homebuilders of for-sale starter homes

• The plan pitches a “first-ever tax incentive for homebuilders who build starter homes sold to first-time homebuyers.”

• We don’t yet have any real details on what this looks like, but assuming it’s sufficiently sized, this could incentivize homebuilders to shift more focus toward starter homes. (Many have, since the Great Financial Crisis, increased focus on pricier, more profitable move-up homes.)

Single-family rental investors with <50 homes

• The Harris/Balz plan hitches itself to legislative proposals that would a) install federal rent control, b) incentivize single-family rental investors to sell houses to first-time homebuyers and c) attach significant tax penalties on larger investors buying existing single-family homes. Notably, the proposals exempt SFR investors with less than 50 units.

• In effect, these proposals would likely reduce the supply of single-family rental homes over time and, in turn, position smaller SFR investors to benefit from the resulting rent inflation. (However, both proposals appear to face uphill battles getting through Congress even if under fully one-party control, so this scenario may not play out.)

Potential Winners

Low-income affordable housing renters

• The Harris/Walz plan pitches “historic expansion of the existing tax incentive for businesses that build rental housing that is affordable.” This appears to be a reference to the Low Income Housing Tax Credit (LIHTC) program and others like it. (The Biden Administration previously proposed big expansion in LIHTC funding, but Congress never approved it.)

• LIHTC expansion would undoubtedly provide a much-needed boost to low-income rental housing supply.

• The plan also pitches a $40 billion housing innovation fund intended to help local governments find creative solutions to build more affordable rental housing. That could potentially pay off longer term, but provides minimal near-term benefit.

• I grade this only as “potential winner” because many of the hurdles are at the city level, so you still need cities willing to greenlight more affordable housing. (More on that in the next bullet point.)

Low-income affordable housing multifamily developers

• Affordable housing development programs like LIHTC are notoriously cumbersome to work through. Increased funds are obviously very good for affordable housing developers, but streamlining the programs would maximize the impact of each dollar.

• Encouragingly, the Harris/Walz plan promises to “cut red tape and needless bureaucracy,” a promising phrase of words uniting both libertarians and progressive YIMBYs, as well as industry groups and tenant advocates alike. This is absolutely critic to any plan to boost housing supply.

• But the high-level plan offers no details on how it’d accomplish that goal, which is in stark contrast to the plan’s other goals – which at least offered a meaty nugget or two.

• The real test is just how far a Harris/Walz administration would be willing to go to push/incentivize cities to reform zoning and expedite permitting approvals in order to “get homes on the market sooner and bring down costs,” as it aims to accomplish.

Mixed Bag

Apartment renters who do not qualify for low-income housing (middle incomes and above)

• There’s a real need for more low-income housing (generally set aside for renters earning up to 60% of the area median income), but there’s also a deficit of quality middle-income rental housing (aka “attainable” or “workforce” housing), and the Harris/Walz plan doesn’t address that. Both can be done. Both/and, not either/or.

• Notably, the plan appears to presuppose that apartment renters are all lower-income renters, and therefore it makes scant mention of conventional apartment development. It’s a missed opportunity not to call this out given the recent drop in apartment rents (and resulting filtering effect on lower-rent apartments) caused by the 50-year high in market-rate “luxury” apartment supply. The White House recently (and rightly) pointed this out, so why not double down? If I’m Harris or Walz, I’d be saying: “Hey, look what happens when we build a ton of market-rate apartments. Let’s keep doing that while we also build more affordable housing, too.”

• Instead, the campaign adopts the empty promises of the “Preventing the Algorithmic Facilitation of Rental Housing Cartels Act,” suggesting this would magically result in lower rent for renters. (For anyone interested in diving into the weeds on this topic, Dom Beveridge wrote an excellent white paper a while back and his blog is a good read, too.)

Conventional apartment investors and developers

• In effect, the Harris/Walz plan is trying to have it both ways – encouraging investors to build apartments while berating them once construction is complete. That stuff wins applause at rallies, but ultimately undermines efforts to build more.

• On the plus side: The plan brings some real political muscle to the growing “build more housing” movement. That includes potential reform of housing development approval processes at the local level (assuming cities play ball), as well repurposing some federal land for housing.

• These are good steps, but probably not enough to reverse the recent plunge in new apartment starts tied to high interest rates and flat/falling rents. Developers cannot build more if it’s unprofitable to do so.

• Another potential benefit: The Harris/Walz proposal incentives renters to pay rent. Only renters who pay rent on time every month for two years would qualify for the $25k in down-payment assistance for first-time homebuyers.

• On the flip side: The plan features a warm embrace of conspiracy theorists blaming “corporate landlords” (both multifamily and SFR) for nearly every problem in all facets of the housing market, hitching onto the White House’s related barrage of campaign-season pitches – including a federal rent control proposal widely panned by economists in academia.

• Additionally, National Association of Homebuilders (whose support you probably need for any realistic plan to build more housing) pointed out that the plan does not address federal regulations that they say contribute to driving up multifamily construction costs by 41%. (More below on that.)

Traditional homebuilders

• Not much here for those who build anything other than starter homes.

• The National Association of Homebuilders gave a tepid reaction to the plan, welcoming the tax credit for starter homes and down-payment assistance for first-time buyers while noting “the plan makes no mention of reducing onerous federal regulations that add to the 24% cost burden on single-family home construction or the almost 41% increase on the construction of a multifamily unit.”

Homebuyers who aren’t first-time buyers

• One challenge today: Some homeowners feel like they can’t afford to move, whether it’s a “rate lock” worry or something else. This plan doesn’t address that, other than embracing the gimmicky “Stop Predatory Investing Act,” which aims to add for-sale housing supply by removing single-family rental supply. (More on that later.)

• Additionally, current homeowners hoping to move would now face two more obstacles – stiff competition from first-time buyers armed for $25k stimulus and SFR seller incentives favoring sales to first-time buyers.

• Another mixed bag: The first-time homebuyer stimulus could help drive up home values (and home equity) for current homeowners – while at the same time pushing up the price to move, too.

Build-to-rent single-family investors/developers

• Build-to-rent (BTR) is an increasingly popular niche among both developers/investors and renters alike. If VP Harris wanted to incentivize investors to focus more on this (net new housing creation), there might be some creative win/win ways to do that.

• In fairness, though, the aforementioned gimmicks of the “Stop Predatory Investing Act” do exclude newly built BTR from the proposed tax penalties on larger SFR owners, but mere exclusion is not additive.) That said, BTR developers would likely benefit from expedited migration of capital away from scattered-site homes and into BTR — a trend that starting taking root several years ago.

• NAHB specifically called out BTR in their reaction to the Harris/Balz plan, noting that homebuilders are “concerned that efforts to target institutional investors will harm the growing single-family built for rent market, specifically those homes built for the rental market, further disincentivizing housing production that is otherwise desperately needed.”

Likely Losers

Single-family rental (SFR) investors with 50+ homes

• Harris/Balz put a big bullseye on large SFR owners, continuing its recent barrage of gimmicky and misleading attacks blaming SFR investors for driving up home prices and even using “taxpayer dollars to unfairly rip off renters.” (For those curious, I addressed many of these myths in a previous edition of this newsletter.)

• The plan calls on Congress to adopt the gimmicks of the aforementioned “Stop Predatory Investing Act,” which would ban investors with 50+ homes from deducting interest or depreciation on taxes for newly acquired properties and incentivize large investors to exit the SFR market. (It appears homes acquired prior to the law’s enactment would be exempt from the tax penalties, but would still qualify for incentivizes if sold to a first-time buyer.)

• Additionally, the plan implies linkage to the White House’s recent rent control plan on investors with 50+ units.

Single-family renters – including families unable/unwilling to buy houses

• It’s gotten scant attention, but the Harris/Walz plan (unintentionally) treats single-family renters as collateral damage in its (well-intended) mission to boost homebuyers. Don’t believe me? Listen to the author of the “Stop Predatory Investing Act” proposal that the Harris/Walz plan adopts. The senator said his bill would “incentivize big investors to sell single-family rental homes back to homeowners or nonprofits in the community.” That might sound appealing until you realize the domino effect…

• It doesn’t take a wild imagination to see how this plan negatively impacts single-family renters. If enacted, there’d be even less SFR supply than there is today. Less supply = fewer options = more upward pressure on rents.

• What the proposed legislation’s authors (and Harris/Walz) fail to point out is that single-family rental supply has already been DECREASING in recent years due to individual homebuyers outmuscling investors. The Harvard Joint Center for Housing Studies noted this last year, concluding: “The number of single-family rentals then fell in more recent years as the for-sale market strengthened, and many of these homes converted back to owner occupancy.”

• Would it be an immediate disaster for SFR renters? No, it’d more likely be a slow burn. But it’s unrealistic to promise – as the Harris/Balz plan does – that this plan would result in “lowering rent for hardworking Americans.” The more likely result would be the opposite (over time) simply because there’d be fewer available single-family rental homes. You might argue that is OK due to the trade-off of some SFR demand shifting into homebuyer demand due to down-payment assistance, and that’s probably true, but unlikely at a 1:1 ratio. That’s because homebuyers come not only from SFR, but also from apartments or from new households spun out combined household arrangements, etc.

• You might also argue that I’m wrong about the impact because the plan excludes smaller SFR owners who control most of the market. But that’s of minimal benefit to renters because smaller “mom and pop” SFR investors have been net sellers for years due to burnout managing homes and increased desire to capitalize on higher home prices as sellers. The Harris/Walz plan doesn’t do anything to incentivize a mom-and-pop resurgence. (For context: Investors with 1-9 homes dominate the SFR market – with 79% market share, according to John Burns. The legislation targets investors with 50+ homes. The Burns data doesn’t offer a 50+ break point, but does show only 7% own 100+ homes.)

• Bottom line: If you’re a single-family renter who isn’t able or willing to buy a house, you’re likely to be The Law of Unintended Consequence’s next victim.

Disclaimer: The contents of this newsletter are for informational purposes, not investment advice. No recommendation or advice is being given.

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