What Experts Say About Trump’s Housing Proposals

As always, this is not automated. That's right, I type out every word you see (unless there's a typo, then it's automated ??).

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?? PHILLY METRO HOUSING REPORT: OCT 28TH-NOV 3RD, 2024 ??

• Purchase Contracts Dip Slightly, but Stay Stronger than Last Year. In the week ending November 3rd, there were 1,797 new purchase contracts in Philly Metro, a -2.9% drop from the previous week. However, the number of pending contracts has remained above last year's levels for the ninth consecutive week, this time by +6.1%. Buyers are more active this fall than they were the past two years.?
• NEW Listings Lag Behind 2023, While ACTIVE Inventory Grows. New listings were down -4.6% from 2023 levels last week. However, overall inventory remains +8.8% higher than the same week in 2023. As we approached election week, and now the holiday season, activity typically slows, opening a potential window for buyers to find favorable deals before the New Year.
• List Prices Hold Steady, Slightly Higher Than 2023 Typically, list prices start to ease in late October, but last week was an exception, as prices remained flat in Philly Metro. This delay in price reductions lands the median list price at $359,000 which is a moderate +2.9% higher than the same week last year. The median time to contract is also up +3 days from the same week in 2023, another sign that buyers are not jumping on homes they way they did in recent years.

TLDR: New purchase contracts slightly down from last week (-2.9%) but still higher (+6.1%) than last year. Despite fewer new listings (-4.6%), total inventory is up (+8.8%) compared to 2023, providing more choices for buyers. List prices are steady this week but up (+2.9%) from last year, with homes staying on the market a bit longer, giving buyers a chance for potential deals before the holidays.

How Would Trumps’s Policy Proposals Impact Housing?

DISCLAIMER: this isn’t a political post, nor does it reflect my personal views. The following is an objective overview of President Trump’s proposed policies and insights from economists on their potential impact on the housing industry.

In case you missed it, President Trump has laid out an ambitious list of economic policies he plans to pursue in his new term.

Let’s take a closer look at some of his key policies and their potential effects on the housing market.

Mass Deportation of Immigrants

Donald Trump has promised to undertake “the largest deportation operation in American history.”

In reality, the evidence that immigration is a major factor in housing costs is mixed. While there are arguments that higher immigration levels can drive up local rents in a city, the recent post-pandemic surge in home prices began well before illegal immigration levels rose and is more of a result of artificially low interest rates and low housing supply.

Make no mistake, the housing sector relies heavily on immigrant labor, which tends to be both skilled and cost-effective. Reducing immigration could significantly cut the labor pool available for new home construction, potentially exacerbating the housing supply crisis and driving up costs. Today, roughly 1/3 of residential construction employment consists of foreign-born workers.

In the short term, reducing immigration could severely hurt the labor supply needed for new homebuilding, which could lead to more catastrophic impacts on home costs and supply in the long run.

Cut Regulations

Trump plans to reduce regulatory hurdles and permit requirements, which he claims add up to 30% to the cost of a new home.

However, those figures appear to be dramatically overblown. The National Association of Home Builders, a longstanding industry critic of regulations, estimates that site work and permit fees actually make up only 7.4% of the average new home’s cost, with general expenses adding another 5.1%.

While streamlining regulations could potentially increase home construction and reduce prices to a degree, it’s unlikely to yield the substantial cost savings Trump envisions.

Open Federal Land For Building

Both Trump and Harris have suggested using federal land for housing, and the Biden administration recently did sell some public land near Las Vegas for this purpose.

Economists generally support this idea as a way to boost new home construction.

However, a major limitation of this plan is that in many cases, there is little federal land located near near major population centers where affordable housing is most needed.

Nationwide, the federal government owns about 27% of the total land area, but much of that land is located in the Western U.S.

In other regions of the country, there may be little federal land to set aside for housing construction.

Pressure The Fed to Lower Interest Rates

Trump has claimed that he would somehow lower mortgage rates, although there is no clear mechanism for the president to do so.

The Federal Reserve sets monetary policy independently and cannot be ordered by the president.

Moreover, mortgage rates are primarily driven by the bond market and investor expectations regarding economic conditions, inflation, and future fiscal policy.

Ironically, mortgage rates have risen recently due to concerns that a Republican-led administration would increase deficit spending, which would raise inflation and bond yields.

Investors seem to be taking Trump at his word and believe his electoral victory will lead to higher tariffs, immigrant deportations, and deficit-financed tax cuts in a full employment economy, all of which means higher inflation and more government borrowing.

BOTTOM LINE

Most economists agree that a dire shortage of homes is the root cause of the nation’s housing affordability crisis.

Trump alone will not change that.

Housing supply, or lack thereof, has plagued the U.S. housing market for at least a decade. Construction plunged following the Great Recession and hasn’t yet fully recovered, leaving the nation in a deep hole of undersupply.

Quick and easy fixes were unlikely to emerge from any candidate.

Trump’s proposals to cut red tape and regulations for homebuilders could help boost construction on the margins. However, most housing economists warn that his other proposals could further hamper supply.

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