Fannie Mae-No Politics (FNMA)

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Important Proposals via Biden

The most important specific changes proposed in Biden's housing policy are, 1) a $15,000 first-time home buyer tax credit, 2) a large increase in funding for the Section 8 subsidized housing voucher program, and 3) tying federal dollars to local communities increasing their zoning density. Let's look at each and then end with a laundry list of the new and expanded housing programs in Biden's housing policy plan.

1) $15,000 First Down Payment Tax Credit

The First Down Payment Tax Credit would be a new refundable, advanceable tax credit of up to $15,000 for first-time home buyers. You would get the money upfront so you could use it as a down payment when you buy your first house. You wouldn’t have to wait until the following year to get the money like with normal tax credits.

These subsidies, unfortunately, eventually make homes more expensive. The first people using the program do well but the subsidy lets buyers bid up home prices and they often do over time. People who don't already own homes are worse off because they have to pay more to buy their first home but current homeowners, of course, are wealthier after home prices increase. Wealth inequality increases.

A similar first-time buyer program existed from 2009 to 2010 but the credit was only $8,000 instead of the $15,000 proposed by Biden. The smaller $8,000 tax credit had a big impact on home prices. Prices nationally had fallen 20% the previous two years but once the tax credit went into effect home sales increased and house prices stopped falling. In some metropolitan areas, house prices actually increased after the tax credit started but after the tax credit ended in 2010, prices started to fall again in those metros. Even though it was much smaller than the proposed Biden plan, the 2009 $8,000 tax credit had a huge impact on house prices.

It’s seems obvious that Biden’s $15,000 First Down Payment Tax Credit proposal would eventually jack up house prices in many markets and would hurt first-time home buyers who buy after the $15,000 subsidy is capitalized into higher house prices, especially where the subsidy causes home prices to increase more than the subsidy.

BOOM!