Reasonable people can disagree on how to address the housing affordability crisis, but any effective solution must recognize the plain truth that it is primarily a supply- rather than a demand-side problem. The growth in new housing construction has been throttled by NIMBYs and other anti-development types, so any increase in demand by giving renters more money will just raise housing costs.
In the platform for her just-launched presidential campaign, Kamala Harris doubles down on a well-intended but ultimately misguided and counterproductive policy she has proposed previously: tax credits for renters. From Jeff Stein in The Washington Post:
The plan would give tax credits to renters who make less than $100,000 a year but spend more than 30 percent of their income on rent (including utilities) — a widely used gauge of housing affordability.
The size of the benefit increases for poorer families and decreases higher up the income distribution. The credit also would be refundable, meaning taxpayers could receive payments even if their tax liability were $0, and those in particularly expensive areas could earn up to $125,000 and still receive the credit.
Harris’s plan would benefit at least 13 million Americans and is similar to a plan written by the Terner Center for Housing Innovation at the University of California at Berkeley, estimated to cost $76 billion.
In the short-term, 13 million will be better off. But what happens when demand increases without a corresponding increase in supply? Stein reiterates Will Wilkinson’s previous criticism of Harris’s plan (when it was proposed as legislation):
“The problem with housing prices is a lack of housing supply relative to demand,” said Wilkinson, who has instead proposed creating a pot of federal funding to reward states that rapidly create new housing stock. “Cities need to build a lot more units, and fast. A tax credit for renters may take the edge off in the short term, but it does nothing about the fundamental problem and could even make the problem worse.”
The housing affordability crisis is too important to go left unaddressed, but instead of giving more money to cash-strapped renters, Harris would be wise to follow the lead of fellow San Franciscan Scott Wiener or likely primary rival Cory Booker and curtail regressive zoning and land-use regulations so supply can grow organically.