Will Kamala’s Housing Plan Lead to Economic Ruin Like 2008?

The Kamala Harris solution to a lack of affordable housing involves more big government instead of unleashing free markets. Just like what caused the Great Recession.

As Kamala Harris flails about for policy positions that will convince voters she can lead the nation through difficult times, she’s settled on trying to solve the nationwide housing crisis. America has suffered for many years from a lack of home inventory, both in the rental market and the personal home market. The lack of supply has caused prices to increase. This crisis has been exacerbated by inflationary pressures, interest rate hikes, and a whole host of other effects dragging the market down.

The Vice President has fallen into a familiar trap—she needs to show leadership and her willingness to make the government Do Something, both to solve the problem and to convince American voters she can actually do the job. So she has decided to do what Democrats often do, following in the footsteps of Barack Obama, Bill Clinton, and Jimmy Carter. Kamala Harris will take the levers of government and attempt to manipulate the markets in the favor of her core constituency, the unintended consequences be damned.

(READ MORE: Harrisnomics Has Brought Corporate Bankruptcies to Near-2008 Levels, Devastating Small Businesses)

Such thinking directly resulted in the 2008 meltdown of the financial markets in the United States that triggered a global recession. Carter signed the Community Reinvestment Act; Clinton expanded its reach in the 1990s. This had several effects on the formerly conservative, risk-averse private mortgage industry. Perhaps the most important of those effects was to remove the risk of writing high-risk mortgages for borrowers with lower probability of paying back their mortgages, by transferring that risk to the federal government. With all of the profit and little of the risk, mortgage companies had the freedom to engage in very risky lending practices, with predictable results.

History Will Repeat If Kamala Harris Becomes President

Now, Kamala Harris has proposed a set of market-interfering policies that could lead to similar results. On the campaign trail, she has proposed a $25,000 downpayment assistance plan in a desperate attempt to buy votes—but only from poor voters. As Restoration News reported:

If you thought Kamala Harris was going to help you get into that starter house, think again—unless you’re an illegal alien, that is.

The Harris-Walz campaign pledged in August to give $25,000 in “downpayment assistance” for 4 million would-be buyers. But not just any buyers; “first-generation home buyers,” which the campaign describes as “homebuyers whose parents don’t own a home.”

Read the fine print carefully, because chances are you aren’t the recipient she has in mind.

In other words, those who can’t afford a down payment and thus don’t have skin in the game will get help from the federal government. In fact, the Harris-Walz campaign brags on its website it will “reduce barriers to homeownership based on medical debt and limited credit history.”

So if you can’t prove you can pay back your debt, that somehow qualifies as a “barrier” and a “social wrong” that Kamala Harris needs to correct using social justice.

If only we had an example from recent history that would indicate how that would turn out.

Kamala Harris and Her Spending Will Massively Expand the Federal Debt

We’ve repeatedly seen throughout the history of Democrats buying votes—under the guise of solving problems—that real solutions would rely on market forces, not more governmental intervention. The Hoover Institution analyzed the Kamala Harris “plan” and found it lacking:

Kamala Harris announced her proposed housing plan last week. The policy will be expensive – perhaps as much as $500 billion - and will do much less to facilitate home ownership than it could, because it does not address the most important reason why housing is expensive: high construction costs. Instead, the plan significantly subsidizes housing demand, which will put upward pressure on housing costs.

One of the biggest demand subsidizers in the proposal is to provide $25,000 to first-time home buyers, perhaps in the form of a tax credit, though that has not been specified yet. Her proposal states this award will be available to “over 4 million” households. The “over” part of this proposal is what could make it so expensive, because “over” could be “way over.”

They go on to point out the laxity of the program’s eligibility requirements: to qualify, one needs to have a job and to have paid rent on time for two years. This puts approximately 20 million new renters into the mortgage market, according to the Hoover Institution, running the cost of the program to at least $500 billion.

What would all this extra federal spending buy for a first-time homeowner? Not much, according to the Hoover Institution’s analysis. They estimate participants could afford a home in the price range of $146,000, a little over one-third of the median US home price of $412,000.

The Harris plan also proposes tax incentives for builders to construct smaller “starter homes.” The low profit margin of these projects makes them unattractive for investors, which really only means Harris proposes lots of Potemkin Villages across America.

The Real Reasons Behind Skyrocketing Housing Prices

The Hoover Institution demonstrates in its analysis that construction costs account for much of the skyrocketing expense in homeownership. The Biden-Harris inflationary regime has hit every level of the economy of home-building, from energy prices to construction materials to labor costs.

Restoration News has reported multiple times on the ways in which the Biden-Harris administration has hindered energy markets, causing costs to explode. Every industry that relies on energy, transportation, and labor has suffered because of this.

(READ MORE: Kamala Harris Admitted It in the Debate: The Inflation Reduction Act Is the Green New Deal)

In addition, mortgage costs have increased significantly in response to inflation. When the inflation rate spiked under Bidenomics, the Federal Reserve raised interest rates to try to put downward pressure on the economy. The rate hikes caused mortgage rates to rise, from a low of 2.65% under President Trump to upwards of 9% under President Biden. According to the Consumer Financial Protection Bureau—the creation of Sen. Elizabeth Warren (D-MA)—that has added an average of $1,200 per month in mortgage costs on a typical $400,000 mortgage.

The American Enterprise Institute (AEI) analyzed the Harris plan and concluded that, for every $100 billion spent on these $25,000 payments, inflation will increase by $177 billion. Worse than that, the total inflationary effect just on homes in this program, over four years, would top $1 trillion.

That’s in addition to all the other inflationary pressures promised under further expansions of federal spending and budget deficits.

In a subsequent article, AEI pointed out how the Harris-style interventions have produced far worse results throughout history than simply doing nothing:

Unfortunately, history tells us her plan would be worse than doing nothing.

The combination of supply and demand subsidies has often led to unintended market distortions. Take, for example, the Housing and Urban Development Act of 1968, which provided easy credit and generous subsidies. While housing permits surged by 1971-1972, the boom fizzled out by 1975, leaving behind long-term damage in cities like Detroit, Chicago, and Cleveland—areas that remain economically hollowed out to this day.

A similar outcome followed the 1992 congressional mandate for Fannie Mae and Freddie Mac to meet affordable housing goals. The resulting credit easing triggered a housing boom, doubling permits from 1.1 million in 1992 to 2.2 million in 2005. However, the market collapsed in 2009, with a 73% drop in housing permits and millions of foreclosures. The devastation of the building industry from that era still haunts today’s market.

That’s Harrisnomics in a nutshell: a complete lack of regard for inflation, spending, the federal debt, and the lessons of history.

Unburdened by what has been, indeed.

We should expect the policies of Kamala Harris to lead to a financial meltdown similar to that of the Great Recession. We know we can do better.

Free Markets to the Rescue

A far better way forward would involve a reliance on free market capitalism. Only one candidate in this election cycle promises anything close to such a vision: Donald Trump.

Instead of creating more inflation under Bidenomics and Harrisnomics, America should renew its dedication to liberty and free markets. The Trump economy succeeded in direct proportion to which the federal government reduced regulations and got out of private markets. Inflation fell as interventions fell. Instead of incentivizing new homebuyers with no credit history and no demonstrated ability to repay, the federal government should create the economic conditions in which everyone can thrive. Removing federal interventions will cool inflation and allow for economic activity to increase across the board. That would be better for everyone, including the first-time homebuyers Kamala Harris is desperately courting.

(READ MORE: There’s No “Opportunity” in Kamala Harris’ Opportunity Economy)