As an increasing number of millennials reach the homebuying age, the nation continues to struggle with insufficient housing supply. The shortage is now catching the attention of presidential hopefuls, and according to researchers at the Urban Institute , they are largely on the right track with their proposals to address the housing shortage.
“The solutions proposed by Democratic presidential candidates are an acknowledgement of the single largest problem our housing market faces today: lack of supply,” said Karan Kaul and John Walsh of the Urban Institute in a blog post  this week.
“Although mostly on point, the plans need some fine tuning and a reevaluation of strategies likely to be detrimental during economic downturns,” they said.
On the positive side, two major components of the Democrats’ plans Kaul and Walsh support include offering incentives to states that reduce restrictive zoning laws and encouraging growth in alternative housing such as manufactured homes.
Zoning laws and land-use restrictions can be prohibitive for housing construction, especially at lower price points. Zoning, code requirements, and land-use laws tend to favor larger, more expensive construction.
While several Democrats’ housing plans include funding for incentive payments to states that ease these restrictions, the researchers say there should be even more emphasis on this aspect of the plan.
Not only would easing these restrictions open up opportunity for more affordable housing construction, but also the savings incurred on construction “would then enable subsidy dollars to go further,” the researchers pointed out.
They said addressing zoning and land-use laws will “have a multiplier effect” and thus should be a larger focus.
The researchers also suggested focusing on manufactured housing and accessory dwelling units, which are cheaper and require less land than traditional single-family housing. Zoning regulations, lack of financing, and stigma currently hinder these affordable housing solutions.
While the researchers believe the Democratic candidates are generally on the right track with their plans to address the housing shortage, they did identify two potentially negative proposals in the plans: taxing empty homes and a large tax on speculative homebuying.
Bernie Sanders proposed a 2% tax on empty homes and a 25% tax on speculative homebuying in which someone sells a non-owner-occupied home within five years of purchasing it.
While well-intentioned these taxes could have a negative impact in a troubled housing market.
For example, a tax on empty homes in a downturn could lead sellers to sell quickly at lower prices, “thus exacerbating declines in housing prices,” the researchers say.
Similarly, while discouraging “paint and flip” sales, the researchers say the tax on speculative homebuying would also “discourage sales of the large inventory of investor-owned homes to renters or other homebuyers at prices that reflect the value of improvements at a reasonable profit.” They would also discourage investors from stepping in and “stabilizing downward-spiraling house prices.”