4 ways Trump's housing plans are expected to hurt homebuyers and 3 ways they could help

 

iStock; Rebecca Zisser/BI

• High housing costs, driven in large part by a shortage of homes, are keeping inflation sticky.
• Trump has pledged to lower housing costs.
• Economists say Trump's proposals are a mixed bag; some could help housing costs and some could hurt.

Housing costs were responsible for about 2/3 of overall inflation over the past year.

President-elect Donald Trump has promised to lower those costs, and economists think some of his policy proposals could do just that. The most promising are cutting federal regulations on construction, opening up federal land for housing, and lowering energy costs.

However, his proposals to increase tariffs, deport millions of immigrants, and cut housing assistance could increase home prices and rents. The inflationary effects of these policies could prevent the Federal Reserve from continuing to cut interest rates.

Ultimately, housing policy experts and industry leaders say housing costs will largely depend on how much new supply can be delivered to the market, which is suffering from a severe shortage of homes.

Karoline Leavitt, a spokesperson for the Trump-Vance transition team, told Business Insider in a statement that Trump "will deliver" on "lowering housing costs for all Americans."

Here are the major Trump proposals and how they're expected to affect housing costs.

Regulations

Trump has promised to reduce federal regulations that make home building more costly "with the goal of cutting the cost of a new home in half," he said.

When it comes to housing, state and local governments control the majority of regulations that most inflate housing costs by limiting or slowing down construction. But federal regulations also play a role. Jim Tobin, CEO of the National Association of Home Builders, told Business Insider that he'd like Trump to roll back some of the Biden administration's energy efficiency requirements, streamline regulations under the Clean Water Act, and loosen a requirement that Federal Housing Administration borrowers' homes be up to code.

But Trump hasn't always favored cutting regulations to encourage more development. During his first term, he rescinded an Obama-era rule designed to reduce racial segregation and said he would protect the suburbs from low-income housing by allowing them to maintain strict local zoning laws. Experts say that if Trump continues to protect single-family zoning, that would further limit construction.

"We need all options on the table when it comes to increasing housing supply, which means allowing more density in suburbs or cities to allow more units to be produced," Tobin said.

Building on federal land

Last year, Trump rolled out a plan to build up to 10 "freedom cities" on federal land, featuring plentiful single-family homes. Since then, the president-elect has said his second administration would create "ultra-low tax and ultra-low regulation" zones on federal land for "large-scale housing construction."

There's some bipartisan support for building homes on federal land, and housing experts say the proposal has the potential to increase the housing supply, particularly in Western states like Nevada, Arizona, and Utah, which have large tracts of federally owned land.

"Building towards affordable housing on these lands could have a transformative impact, especially because land costs are a major barrier," Maurice Page, executive director of the nonpartisan Nevada Housing Coalition, recently told Business Insider.

Energy costs

Vice President-elect JD Vance has promised that the Trump administration would boost home building in part by drilling for more oil and making energy cheaper. Construction industry experts and economists say lower energy costs wouldn't hurt affordability but likely wouldn't significantly increase construction or bring housing costs down.

"Energy prices are significant, but they're not as significant as many other inputs," Anirban Basu, chief economist at the construction industry trade group Associated Builders and Contractors, recently told Business Insider.

Interest rates

Trump has repeatedly said that his administration would tame inflation and, therefore, lower interest rates. During a speech at the Economic Club of New York in September he said he'd bring mortgage interest rates down to 3% or lower. His say over rates is limited; the Federal Reserve controls interest rates and operates independently of the president.

Tobin said he expects mortgage rates will settle into a "new normal" of about 5 to 5.5% by 2026, lower than the current 30-year fixed rate of 6.79% but above the prepandemic average. "It's going to be a bumpy ride down," he added, noting that mortgage rates recently rose to a four-month high even as the Federal Reserve cut its benchmark interest rates.

Many economists say that Trump's proposals to cut taxes, impose significant new tariffs on imports, and deport millions of immigrants would have an inflationary effect and discourage the Federal Reserve — whose independence Trump has threatened — from further cutting rates.

When it comes to housing costs, many economists say that even if mortgage rates come down, that could spur additional demand for housing, sending prices further up.

Tariffs

Trump campaigned on imposing a 60% tax on products from China and 10 to 20% tariffs on most other foreign goods. These include key building materials like lumber and steel, which make up a significant portion of the cost of building a home. Tariffs would also impact the prices of other materials and finished products, like air conditioning units and garage doors.

Biden has kept some of those tariffs in place and even raised taxes on Canadian softwood lumber, which is crucial to the US home-building industry. Expanding the tariffs further would likely drive up building costs.

"If there are huge tariffs getting thrown around, that really hurts home builders," Ben Metcalf, a housing policy expert at UC Berkeley, told Business Insider. "those could be huge drags on cost and therefore on supply."

Mass deportations

Trump and Vance have repeatedly argued that their plans to deport millions of immigrants will alleviate housing affordability issues by lowering demand.

But many economists disagree and posit that mass deportations would actually inflate housing costs. The construction industry is already short around 500,000 workers, and a further reduction in the labor force would slow down construction and inflate prices even more. Immigrants are a key part of building housing as they make up about a quarter of the construction workforce. An estimated 15 to 23% of that overall workforce are undocumented immigrants.

"Just even the talk of mass deportations could send a chill through the entire immigrant employment sector," Tobin said. "Anything that constricts labor in the country will have an impact on us meeting those housing goals over the next few years."

Federal housing assistance

During his first term, Trump repeatedly proposed major cuts to housing assistance for households with low incomes or members with disabilities. In each of his annual budgets, he proposed stripping funding from many rental and homeownership assistance programs, including significantly cutting back on housing vouchers and raising rent on low-income households that receive federal aid.

All of Trump's budgets also proposed dramatically cutting federal funding for programs that help build and renovate affordable housing. While Congress didn't approve those cuts, policy experts expect the next Trump administration to pursue the same goals. This would make it harder for lower-income Americans to afford homes and slow down affordable housing construction.

"I just don't think there's any interest by Trump or by a Republican Congress in investing in certain traditional HUD programs and investments," Metcalf said.

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