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President Biden has proposed giving first-time homebuyers a tax credit equal to a cash subsidy of $400 a month to offset mortgage costs.
This year’s newly released Economic Report of the President, under the direction of Jared Bernstein and Heather Boushey of the Council of Economic Advisers, is a superb piece of work. Two of the most instructive chapters deal with full employment and with housing, and the connection between the two.
If you ever needed a compendium of all the benefits provided by full employment, here is your reminder. The chapter is dedicated to our friend and longtime Prospect board member, Howard University economist Bill Spriggs, a longtime crusader for full employment, who died an untimely death last June.
As the report shows, tight labor markets not only raise worker wages and worker bargaining power. Full employment is a special boost for Black and Hispanic workers.
In the current Biden boom, where unemployment has been consistently below 4 percent for the longest period since the Vietnam War, Black unemployment fell at a more rapid rate than unemployment generally. The racial gaps in the unemployment rate are now at record lows. The transition rate for disabled workers from nonemployment to employment is at record highs. Youth unemployment has also fallen.
Impressive wage compression is also a big part of the story. In the Biden boom, wages in the lowest tenth of the income distribution grew by seven percentage points more than they did for the top tenth.
Full employment, as the report points out, needn’t be inflationary. That was especially true in this recovery, when the bout of inflation that spiked in 2022 was mainly the result of supply bottlenecks and not of excessive demand, as unrepentant mistaken austerity crusaders like Larry Summers kept insisting.
And, as the report explains, though the supposed trade-off between unemployment and inflation is a staple of orthodox economics, the terms of that trade-off can be improved by the kinds of smart policies the Biden administration has pursued. Those include industrial and infrastructure programs to relieve supply bottlenecks, targeted job training and apprenticeship programs, as well as antitrust and pro-competition strategies to relieve sources of price hikes that reflect market power, such as drug prices and junk fees, which have nothing to do with general inflationary pressures. Biden has also acted to remove illegitimate employer tactics to suppress wages, such as mandatory noncompete clauses and illegal anti-union activity.
Some 45 percent of renters are now cost-burdened, more than twice the share who were cost-burdened in 1960.
One other source of stress on labor markets is unaffordable housing. When reasonable housing is not available near jobs, the supply of workers becomes artificially scarce. The absence of good, affordable child care near available jobs also deters potential workers from hiring on.
And here’s where the good-news story of full employment success becomes a bad-news story of death by a thousand cuts, something that Biden can do only so much to improve.
As the report documents, the statistics of housing shortage are appalling, and getting worse. Some 45 percent of renters are now cost-burdened, meaning that they spend 30 percent or more of their family income on rent, more than twice the share who were cost-burdened in 1960. The burden gets worse the lower down the income scale you go.
Because of rising land costs, the report explains, physical construction costs have quadrupled since the 1980s. Between 1980 and the early 2020s, housing prices grew by over sixfold, or about 50 percent more than the fourfold increase in construction costs. Production of housing has declined, especially since the collapse of the housing bubble in the late 2000s, which led to a sustained depression in housing construction that lasted a decade and still never fully recovered. And stringent zoning rules in the most undersupplied areas of the country have made it illegal to build in some areas.
President Biden has proposed giving first-time homebuyers a tax credit equal to a cash subsidy of $400 a month to offset mortgage costs. But Congress has to concur, and this will not happen unless Biden gets re-elected and takes both houses of Congress with him.
Much of this proposed subsidy only compensates for the Fed’s high interest rates. The difference between payments on a $100,000 mortgage with a 7 percent interest rate and with a 4 percent rate is about $300 a month.
On the rental front, things are even worse. To produce and subsidize rental housing, the U.S. relies heavily on two badly flawed programs that reward landlords and developers, with some of the costs trickling down to tenants. They are the Section 8 housing voucher program and the Low-Income Housing Tax Credit. The subsidies in these programs are finite, which means that tax dollars go to underwrite affordable housing that may or may not stay in the social-housing sector. (This is my own critique, not that of the Economic Report of the President.)
True social housing, such as the public-housing program that dates to the 1930s, has been unpopular with Congress, which has capped the number of units and has refused to adequately fund maintenance and repair, thus adding to public housing’s ill repute. Adding to these pressures are NIMBYism and zoning restrictions, which mean that even when funding is available, the housing often doesn’t get built where it is needed.
The report gamely calls attention to all of these problems, and credits both local efforts and the Biden administration’s measures to improve things, albeit only marginally. For instance, several states and localities, with the administration’s encouragement, have pursued zoning reforms. And Biden’s HUD has sought to streamline the process for existing subsidy programs.
What’s really needed is a massive expansion of true social housing that is attractive to the middle class as well as the poor, scattered in all neighborhoods, of the sort that is widespread in Austria, the Netherlands, Scandinavia, and Singapore. That also damps down NIMBYism.
The Economic Report of the President, understandably, is written within the constraints of what is currently considered politically thinkable; and given those constraints, it is a superbly useful document. We have to hope that in a second Biden term, the White House thinks a lot bigger and widens the bounds of the possible.
