The Biden administration released a five-prong plan to close the housing shortfall in five years. Here's what you need to know.
The record price growth in recent years is due to vast imbalance in supply and demand. There are simply far more people looking to buy than there are homes for sale.
Today, President Biden announced a five-pronged Housing Supply Action Plan that aims to close the housing supply shortfall in 5 years, thereby increasing affordability and making homeownership more attainable.
According to Moody’s Analytics, the US is facing a housing shortfall of more than 1.5 million homes, which has wide-ranging impacts of affordability, economic growth, racial equality, and inflation. Biden plans to make up this shortfall through a blend of proposed legislation and immediate administrative action, beginning with building and fixing-up 100,000 homes in the next three years.
The five prongs of Biden's Housing Supply Action Plan are:
- Providing incentives for land use and zoning reform and reducing regulatory barriers
- Piloting new financing for housing production and preservation
- Improving and expanding existing federal financing
- Preserving the availability of affordable single-family homes for owner-occupants
- Addressing other constraints to supply: Materials costs and labor supply
According to the White House press release, one of the causes of the housing shortfall is single-family zoning laws that prevent multi-family construction and limit density.
The Housing Supply Action Plan builds upon previous efforts to “reward jurisdictions that have put in place land-use policies to promote density and rural main street revitalization” with grant money from the Department of Transportation (DOT) and Housing and Urban Development (HUD).
One reason the market lacks affordable housing is because there is a lack of attractive options for financing and rehabilitating lower cost homes. In other words, it’s easier for builder to finance large multifamily projects instead of smaller, more affordable single-family homes, manufactured homes, accessory dwelling units (ADUs) and 2-4 unit multifamily properties.
The White House is introducing construction financing programs designed to increase the supply of manufactured homes, ADUs, and rural single-family homes.
It’s also calling on Congress to pass the Neighborhood Homes Investment Act, which provides tax credit incentives to build and rehabilitate affordable homes, and sell them to owner-occupants instead of investors.
The federal government already has a series of channels – such as HUD, Fannie Mae and Freddie Mac, and the Low-Income Housing Tax Credit – to finance housing construction. Now, it’s using administrative action and calling on Congress to pass legislation to expand those channels.
For example, it would request that state, local, and Tribal governments to use funds from the American Rescue Plan to build and preserve affordable housing, and create assistance programs to help people purchase homes.
It’s also proposing a reconciliation bill that would increase the incentives in the Low-Income Housing Tax Credit to further encourage the construction of affordable housing.
Homebuyers are not only competing against each other – they’re often competing against investors, which in recent months have made up more than 25% of home sales and typically pay cash.
The Biden Administration is directing FHFA (which overseas Freddie Mac and Fannie Mae) and FHA to offer foreclosed homes to owner-occupants for 30 days before opening them to investors, and directing 50% of the supply to owner-occupiers, compared to the typical 10%.
Another cause of rising housing costs is the lingering lot, labor, and material shortages builders are facing due to the pandemic. That’s made homes much slower and more expensive to build.
The administration is targeting actions to reduce these barriers with the goal of completing more homes in 2022 than any time since 2006.
The first step is to partner with building industry leaders to find out how the federal government can expedite home building and reduce costs. It’s also setting aside funding for research and development into new home building materials and technologies, like 3D-printing and prefabricated wall panel blocks.
Homeownership is a primary means of creating generational wealth in the US and the current shortfall of affordable homes is creating barriers to first-time, low-income, and underserved homebuyers.
The White House plan sets an ambitious goal of closing the 1.5 million-home shortfall in 5 years. But if successful, it will be to the benefit of millions of homebuyers and the generations to follow.