A signature feature of Kamala Harris’s housing plan is providing first-time home buyers with $25,000 in down-payment support, at a total cost of $100 billion over four years. Absent a severe recession, this policy is all but certain to lead to higher home prices. That’s because the four million program recipients would become price setters for all buyers in their neighborhoods.  

According to the American Enterprise Institute’s Housing Center, 77% of all home purchases would be subject to this home buyer “tax,” causing the price of these homes to increase by 3.6%. Over four years the increase in home prices would total $175 billion, more than the $100 billion cost of the program. The price increase would show up in higher revenue for sellers, thus acting as a wealth transfer to them.

The law of supply and demand dictates that an increase in demand without a commensurate increase in supply will result in higher prices. This effect on prices is because we’re currently in a strong sellers’ market, which exists when the number of months it would take to sell all the homes currently on the market is less than six. As of August, the overall supply of homes for sale was 3.7 months’ worth. For houses in lower price tiers, that number drops to 2.4 months. Sellers’ markets create upward price pressure on home prices, which grows more powerful when demand is further stimulated. Ms. Harris’s policy would do just that, boosting demand by giving buyers more spending money.

Continue reading on The Wall Street Journal.