Rising housing costs, mainly caused by a housing shortage, are causing inflation to remain high. President Trump has promised to lower housing costs. Economists say there are pros and cons to President Trump’s proposal. Some will help you with your housing costs, while others will hurt you.
Housing costs accounted for about two-thirds of all inflation over the past year.
President-elect Donald Trump has promised to reduce those costs, and economists think some of his policy proposals could do just that. The most promising would be to reduce federal regulations on construction, free up federal land for housing, and lower energy costs.
But his proposals to raise tariffs, deport millions of immigrants and cut housing subsidies could raise home prices and rents. The inflationary effects of these policies may prevent the Federal Reserve from continuing to lower interest rates.
Housing policy experts and industry leaders say that ultimately housing costs will largely depend on how much new supply can be added to a market suffering from a severe housing shortage.
Caroline Leavitt, a spokeswoman for the Trump-Vance transition team, told Business Insider in a statement that Trump “will deliver” “lower housing costs for all Americans.”
Here are President Trump’s key proposals and how they are expected to affect housing costs.
rules
President Trump said he promised to cut federal regulations that increase the cost of building homes, “with the goal of cutting the price of new homes in half.”
When it comes to housing, state and local governments control most of the regulations that drive up housing costs the most by limiting or slowing construction. But federal regulations also come into play. Jim Tobin, CEO of the National Association of Home Builders, told Business Insider that he wants President Trump to roll back some of the Biden administration’s energy efficiency requirements, streamline regulations under the Clean Water Act, and improve the Federal Housing Administration. He said he would like to see the requirements for borrowers relaxed. ‘The house is up to code.
But President Trump hasn’t always been in favor of cutting regulations to encourage more development. During his first term, he said he would protect suburbs from low-income housing by rolling back Obama-era rules aimed at reducing racial segregation and allowing strict local zoning laws to remain in place. Experts say if President Trump continues to protect single-family residential zoning, construction will be further restricted.
“We need to consider all options when it comes to increasing housing supply, and that means increasing density in suburban and urban areas so we can produce more units,” Tobin said. .
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build on federal land
Last year, President Trump announced a plan to build up to 10 “free cities” on federal land with many single-family homes. The president-elect has since said his second administration would create “ultra-low tax and ultra-low regulation” zones on federal land for “large-scale housing construction.”
There is bipartisan support for building homes on federal land, and housing experts say the proposal would increase housing supply, especially in Western states such as Nevada, Arizona and Utah, which have large tracts of federal land. states that it is possible.
Maurice Page, executive director of the nonpartisan Nevada Housing Coalition, recently said, “Building affordable housing on these lands can have a transformative impact, especially since land costs are a major barrier.” ,” he recently told Business Insider.
energy cost
Vice President-elect J.D. Vance has promised that the Trump administration will boost housing construction by drilling more oil and making energy cheaper. Construction industry experts and economists say lower energy costs won’t hurt affordability, but they are unlikely to significantly increase construction or lower housing costs.
“Energy prices are important, but not as important as many other inputs,” Anirban Basu, chief economist at the construction trade group Associated Builders and Contractors, recently told Business Insider.
interest rate
President Trump has repeatedly said his administration will curb inflation and thereby lower interest rates. In a speech at the New York Economic Club in September, he said he would lower mortgage rates to below 3%. His say over interest rates is limited. The Federal Reserve controls interest rates and operates independently of the president.
Tobin expects mortgage rates to settle into a “new normal” of around 5-5.5% by 2026, lower than the current 30-year fixed rate of 6.79%, but still It is expected that this will exceed the previous average. “It’s going to be tough going forward,” he added, noting that mortgage rates recently rose to a four-month high even though the Federal Reserve lowered the benchmark rate. .
Many economists believe that President Trump’s proposals to cut taxes, impose significant new tariffs on imported goods, and deport millions of immigrants would have an inflationary effect and threaten the independence of the Federal Reserve. It said it would discourage the Fed from cutting rates further.
When it comes to housing costs, many economists say that even if mortgage rates fall, demand for additional housing could be stimulated and prices rise further.
customs duty
President Trump had advocated imposing 60% tariffs on Chinese goods and 10% to 20% on most other foreign products. These include key building materials such as wood and steel, which make up a significant portion of home construction costs. Tariffs will also affect the prices of other materials and finished goods, such as air conditioners and garage doors.
Biden kept some of those tariffs in place and even increased taxes on Canadian softwood lumber, which is critical to the U.S. homebuilding industry. Further expansion of tolls would likely increase construction costs.
“A huge tariff would really hurt home builders,” Ben Metcalf, a housing policy expert at the University of California, Berkeley, told Business Insider. “They can be a big drag on costs and therefore supply.”
mass deportation
Mr. Trump and Mr. Vance have repeatedly argued that their plan to deport millions of immigrants would alleviate housing affordability problems by lowering demand.
But many economists disagree, arguing that mass deportations would actually make housing more expensive. The construction industry is already short of about 500,000 workers, and further reductions in labor would slow construction and push prices higher. Immigrants make up about a quarter of construction workers and play an important role in housing construction. An estimated 15-23% of the total workforce are undocumented immigrants.
“Just talk of mass deportations could have a negative impact on the entire immigrant employment sector,” Tobin said. “Anything that strains the workforce in this country will impact the achievement of housing goals in the coming years.”
federal housing assistance
During his first term, Trump repeatedly proposed significant cuts to housing subsidies for low-income families and people with disabilities. In his annual budget proposal, he proposed stripping funding from many rental and homeownership assistance programs, including deep cuts to housing subsidies and rent increases for low-income households receiving federal aid.
All of President Trump’s budget proposals also propose significant cuts to federal funding for programs that help build and renovate affordable housing. Although Congress did not approve these cuts, policy experts expect the incoming Trump administration to pursue the same goals. This would make it harder for low-income Americans to afford housing and slow the construction of affordable housing.
“I don’t think President Trump or the Republican Congress is interested in investing in certain traditional HUD programs or investments,” Metcalf said.
