Trump Housing Affordability Plan Aims to Keep Homes Expensive

A year into his presidency, Donald Trump released his housing plan. If you blinked, you missed it.

How thin is it? This column might be longer than the plan itself.

I could identify just five elements, two of which have little to do with housing:

1. Ban institutional purchases of single-family homes

2. Let homebuyers raid their 401(k)’s

3. Lower mortgage rates by buying mortgage-backed securities

4. Cap credit card interest at 10 percent for one year

5. Boost cryptocurrency

The most remarkable thing is that the plan aims to raise the price of housing. Usually, affordability measures seek to bring prices down.

“I am very protective of people that already own a house,” the president explained at Davos. “Every time you make it more and more and more affordable for somebody to buy a house cheaply, you’re actually hurting the value of those houses, obviously, because one thing works in tandem with the other.

“And I don’t want to do anything that’s going to hurt the value of people that own a house, who, for the first time in their lives, are walking around the streets of whatever city they’re in, very proud that their house is worth $500, $600, $700,000,” he continued.

In the same speech, he blamed immigration under Joe Biden for driving up home prices. He didn’t say homeowners benefited from that. But I digress.

The point is, Trump’s plan is to put more money into homebuyers’ pockets and lower mortgage rates. These two factors allow people to bid more for homes. That, along with the pandemic accelerating Americans’ homebuying plans, is what caused housing prices to explode from late 2020 to mid 2022.

Let’s look at Trump’s first three proposals.

The ban on institutional buying is similar to a law enacted by Gov. Kathy Hochul and Democratic legislators last year. Hochul’s bill was populist, unsupported by evidence and sure to be ineffective, as is Trump’s executive order.

The columns linked above explain why, but the main reason is that big firms buy very few homes. Don’t be fooled by reports that lump big firms together with mom-and-pop house flippers to show that “investors” are responsible for 1 in 5 home purchases in a few markets.

Institutional buyers’ share is actually about 2 percent. It rises when the mortgage market seizes up, as it did in 2008, but that’s when Trump’s treasured homeowners need them the most, isn’t it?

Proposal No. 2, as yet undrafted, would allow people to raid employer-based retirement accounts without penalty to buy a home. First-time buyers can already use $10,000 penalty-free from an IRA, but not from a 401(k) or 403(b).

However, Fox News ran an opinion piece Friday calling the idea a “full-blown retirement disaster” hours after Trump told reporters, “I’m not a huge fan of it.”

It’s actually not so bad. As much as I love compound interest and tax-free growth, some expenditures early in life, such as for education or a home, are more valuable than those made later, like taking lavish cruises to spend down your bloated retirement account.

No. 3, lowering mortgage rates, has been a Trump obsession for a while. It’s one reason he’s tried to end Federal Reserve Board independence, which experts agree would be a huge mistake.

He took a safer route by directing Fannie and Freddie to buy $200 billion in mortgage-backed securities, after which mortgage rates fell 22 basis points to just under 6 percent. But $200 billion is just 1.4 percent of the MBS market and the effect will be minimal and short-term, analysts said.

There’s not a whole lot that presidents can do to lower mortgage rates, but avoiding inflationary tariffs would help. Just saying.

I included Proposals 4 and 5 because Trump mentioned them at Davos as part of his housing plan. They’re not housing-specific, but Trump said they would help people with credit card debt or crypto investments save for a house.

I don’t know many financial advisers who would suggest investing your house fund in something as volatile and unpredictable as cryptocurrency. In any case, the reform that Trump touted, the Genius Act, became law last summer. Another bill is pending.

A one-year reprieve from high-interest credit card debt would save thousands of dollars for people with a pile of debt, which is why Sen. Elizabeth Warren, who despises Trump, likes the concept.

But struggling debtors would still be a long way from saving enough for a down payment on a home. The temporarily low rate would cause some Americans to spend more and rack up higher debt. And card issuers would deny credit to millions of people with low credit scores.

At Davos, Trump didn’t mention 50-year mortgages, an idea he floated in November to mostly negative reviews before backing away from it in January.

The president had said the longer term would mean a lower monthly payment. But, in keeping with his plan, it would cause people to bid more on homes. And it would leave them with mortgage payments well into their retirements. For many, that would be a burden — especially if they had raided their 401(k) for the down payment.

Trump’s housing plan, if it can be called a plan, treats homes as a zero-sum game because making them more affordable makes them less valuable for owners. Yet this is “not a truth of economics,” only of politics, writes David Dworkin of the National Housing Conference.

“In this view, the housing market is a fixed pie, and making homes more accessible slices away from someone else’s wealth,” he explains. “The reality is more complex, but it is built on the foundation that we can make more pies.”