Biden proposes fixing government with more government

Being an advocate for sound public policy feels a bit like being the mythological Sisyphus who was condemned to push a boulder up a hill for eternity. The deluge of bad proposals coming from the local, state and federal levels is unrelenting, which requires government watchdogs’ constant vigilance.

Anyone with a healthy distrust of politicians or government understands this, but what is amazing is that the torrent of ill-conceived public policy proposals continues when more obvious answers sit in plain sight. The Biden administration’s recent full-throated endorsement of a virtual cash giveaway to “fix” the sagging housing market perfectly encapsulates this.

In order to make 2 million additional homes available, President Joe Biden touted a plan to provide tax incentives to build more homes, a $10,000 tax credit to individuals who sell their existing houses and $25,000 in down payment assistance to first generation homebuyers.

To his credit, Biden acknowledges that a problem exists. There is a massive housing shortage and affordability issue in the United States. Depending on which source you listen to, we are short somewhere between 3.2 and 6.5 million homes. The limited inventory is acute, which is particularly noticeable in Georgia where there’s only a three months’ supply of houses for sale.

Meanwhile, due to high demand and low supply, housing prices have exploded. The national median price of an existing home is a little over $387,000. In the Peach State that number sits at $351,000, but the median home sale price here when Biden took office was only $270,000. This is clearly not a new problem, but has been worsening; Much of it was government-created.

The housing shortage can be blamed on a few factors. New construction costs have surged thanks to increasing inflation, labor costs and perhaps just as importantly, government overregulation. According to a 2021 national study, “On a dollar basis, applied to the current average price ($394,300) of a new home, regulation accounts for $93,870 of the final house price.” In other words, without that government regulation, homes might be about 25 percent cheaper. Gee thanks, government.

The other issue, which has done more to damage the housing market than anything else, is also of the government’s making. In an attempt to curtail runaway inflation, federal bureaucrats ratcheted up the federal reserve rate, and markets reacted as expected. It made affordable loans more difficult to find. This curtails spending, which reduces demand, and helps cool inflation.

One of the glaring problems with this approach is that most Americans cannot make essential purchases like buying homes or autos without a loan, but now interest rates have soared. When Biden took office, the average rate for a 30-year fixed mortgage for someone with exceptional credit was below 3 percent. Today, thanks to meddling with the federal funds rate, it stands at over 7 percent in Georgia.

This has a double effect. First, it disincentivizes current owners from selling their homes because they can’t afford to give up their sub-3-percent mortgage rate, and many prospective homeowners cannot afford to buy homes at new inflated prices, especially when factoring in a 7-percent mortgage rate. So where do we go from here?

Biden thinks more government is the answer to a problem largely created by the government. I believe I speak for most Americans when I say, ‘Please stop. You’ve already done enough,’ and understandably. His current proposal is fraught with issues. For starters, Biden is seeking to add 2 million houses to the available inventory, but when anywhere between 3.2 and 6.5 million homes are needed, this is insufficient.

This proposal may also come up short of hitting the goal of providing 2 million homes. Why would a $10,000 tax inducement persuade enough homeowners to sell their houses? If they need to purchase another home, they will pay far more than that in a little over a year in increased mortgage rates – based on average Georgia prices. In the end, a cash giveaway in the form of tax credits when the country is already facing crippling debt seems like a short-sighted approach.

As I’ve written before, if Biden is serious about increasing inventory and reducing housing costs, then the answer is relatively straightforward: Reduce the federal reserve rate and work with states and locals to reduce homebuilders’ regulatory costs. It doesn’t take a genius to see the solution when it is so obvious.

So long as the government continues to think the best way to solve government-created problems is with more government, public policy advocates will remain busy. They will be trapped playing an eternal Sisyphean game of whack-a-mole as they defend against a barrage of imprudent proposals, like Biden’s.