Chairman Whitehouse, Ranking Member Grassley, and committee members, thank you for the opportunity to testify on this most important topic.

History offers a cautionary tale against inappropriate federal action in the housing market: From the 1930s to 2008, Congress passed and presidents signed into law at least 43 housing, urban renewal, and community development programs. Despite their lofty promises, these initiatives consistently failed in making housing more affordable, and a number were downright disasters.

The root cause for housing affordability is a shortage of 3-8 million housing units, which is fueling both unaffordability and a homeless crisis in many areas. Nationally, we have had a sellers’ housing market since 2012 and we remain in a strong sellers’ market today, especially at the low price end, Sellers’ markets provide upward price pressure, which worsens if demand is further stimulated.

What not to do:

1. Vice President Harris’s plan to provide up to $25,000 in down payment assistance to 4 million first-time buyers over four years is almost certain to lead to higher home prices, thereby, more than eliminating the intended benefits. The millions of program recipients would become price setters for all buyers in the neighborhoods where the recipients buy. Our research shows that home prices would rise by an additional 3.6 ppts., 77% of all home purchases would be subject to this home buyer “tax”, and this tax would total $175 billion over 4 years, more than the $100 billion cost of the program. This would be a wealth transfer to existing homeowners—rewarding NIMBY opposition to added supply.
2. Harris’s proposal calls for the construction of 3 million new housing units over four years. History shows that this approach can lead to significant market distortions. The Housing and Urban Development Act of 1968 provided easy credit terms and substantial subsidies, resulting in a 2.5 million-unit surge in housing starts by 1973, only for this boom to more than dissipate by 1975, leaving lasting scars on cities like Detroit, Chicago, and Cleveland. Similarly, the 1992 congressional GSE affordable housing goals combined with President Clinton’s National Homeownership Strategy led to an easing of credit in the run-up to the Great Financial Crisis. Housing starts increased by 3.7 million 1992 to 2006, but then collapsed by 2009, leaving behind millions of foreclosures and a persistent housing supply deficit that still afflicts us. Without massive credit easing, the Harris proposal would incent new construction would have been built in any event, and any incremental construction would be unevenly distributed, causing more supply/demand imbalances.
3. Harris’s $40 billion fund for local governments to explore “innovative” housing solutions will likely funnel money into projects burdened by self-defeating government-mandated affordability requirements, which HUD loves but markets abhor. By further empowering federal bureaucrats, it will do more harm than good.

The fundamental problem holding back housing construction is not insufficient subsidies but structural issues—namely, restrictive zoning, land use rules, and building codes This makes buildable land scarce and expensive, and increases construction costs.

We need to significantly increase market-rate housing supply. The federal government has several levers at its disposal to encourage this result:

1. A 10-year plan to auction surplus federal lands for new market-rate home construction could add 200,000 homes per year. However, for this to be effective, the rules need to follow the keep it short and simple or KISS rule. These sales could generate $10 billion in annual receipts.
2. Eliminating the mortgage interest deduction for second homes would add to supply and reduce demand by freeing up 700,000 existing homes over the next decade for primary occupants.
3. Reducing regulatory costs that hold back builders by increasing construction expenses is crucial—and indeed, this is an issue that Harris and Trump’s plans hope to address. On the federal level, many of these relate to restrictions on logging and excessive energy mandates, including an effort to phase out home use of natural gas. 
4. Adopting a credible plan to reduce deficit spending could lower the ten-year treasury (and mortgage rates along with it) by 75-100 bps.
5. Establishing accountability on the expenditure of federal housing subsidy dollars. In 1953, the NAHB noted: “Public housing is not low-cost housing. It is high-cost housing offered at low rent….”  Today, subsidized projects are all too often a revolving door of subsidizing, rehabbing, tearing down, and rebuilding. This committee should require HUD to document project by project this revolving door of waste.

These measures, in combination with state and local efforts to deregulate land use and zoning, can more effectively address the housing affordability crisis, all at no taxpayer cost and without unintended consequences.

Failure to act appropriately will lead to even greater unaffordability and diminished economic growth.