In a bold move aimed at increasing homeownership rates among first-time buyers and historically underserved communities, or maybe just an attempt to earn/buy votes,  Vice President Kamala Harris proposed a $25,000 down payment assistance grant. On the surface, this initiative sounds like a lifeline for those struggling to achieve the American dream of owning a home. However, as we’ve learned from previous government interventions in the housing market, the road to unintended consequences is often paved with good intentions.

While the grant aims to address issues of affordability, it could, ironically, end up doing more harm than good—potentially inflating home prices and further complicating the very problem it seeks to solve.

Supply and Demand: A Delicate Balance

The housing market operates on the basic principles of supply and demand. When more money is injected into the market without an accompanying increase in supply, the result is almost always inflation. Housing prices are particularly sensitive to this equation. As more buyers flood the market with access to additional cash (thanks to the $25,000 grant), sellers will inevitably raise prices to capitalize on the increased demand.

The result? Homes become more expensive, and the value of the $25,000 grant is quickly eroded. In fact, prices could rise by more than the $25,000 being offered. This phenomenon isn’t new—we’ve seen it before with other well-intentioned policies that pumped money into the market without addressing the root problem: supply shortages.

History Repeats Itself

Let’s take a trip down memory lane. Back in 2008, various stimulus efforts aimed to prop up the housing market after the crash. The government introduced a first-time homebuyer tax credit, which, while popular, ended up inflating home prices temporarily. Buyers who were able to snag properties benefitted initially, but once the credit expired, home values dipped, leaving some new homeowners underwater.

If Kamala Harris’s down payment assistance plan is enacted without a corresponding focus on increasing housing supply, we could see a similar pattern. The grant could stimulate a temporary buying frenzy, driving up prices, but leaving many buyers in precarious positions once the market stabilizes.

The Risk of Bidding Wars and Gentrification

A surge of buyers armed with an extra $25,000 in their pockets could also lead to more aggressive bidding wars. The unfortunate reality is that in competitive housing markets, cash is king. Buyers might be forced to offer even more than the asking price just to secure a home, which could exacerbate the already alarming issue of affordability.

Additionally, this influx of government-subsidized cash could unintentionally accelerate gentrification in certain neighborhoods. Well-meaning policies designed to uplift underserved communities could actually price current residents out of their homes, displacing them in the process. The very people the grant aims to help may find themselves further marginalized by escalating home prices.

Inflation: A Hidden Cost

Another macroeconomic concern is the impact on inflation. As more buyers enter the market and prices rise, the overall cost of living could increase, driving inflation higher. With the Federal Reserve already walking a tightrope between managing inflation and maintaining economic growth, adding fuel to the fire through housing market inflation could force the Fed’s hand, leading to interest rate hikes. This, in turn, would increase mortgage rates, auto loans, credit card rates, ultimately making housing and everything else even less affordable—negating any short-term benefits of the grant.

Focusing on the Real Issue: Supply

The real solution to the affordability crisis lies in increasing the supply of homes, not just boosting demand. Policies that incentivize builders to create more affordable housing, streamline zoning regulations, and promote infrastructure development could have a far more lasting and equitable impact. We know she is promising 3,000,000 homes, which sounds great, but what is the actual plan. I do like tax incentivizing builders to build more cost effective homes, however what that needs to look like to see some action is still to be determined.

Rather than providing a $25,000 band-aid, the focus should be on creating a sustainable housing market where prices reflect real value, not artificially inflated demand. Supporting construction in underserved areas, offering tax breaks for developers who build affordable homes, and reducing red tape are essential steps in addressing the root cause of the housing crisis.

The Road to Economic Stability

While Kamala Harris’s $25,000 down payment assistance grant comes from a place of good intentions, I think (or just to get votes), it risks creating more problems than it solves. Without a careful focus on the bigger picture—particularly the need to increase housing supply—this policy could inadvertently inflate home prices and deepen the affordability crisis it seeks to alleviate.

A more balanced approach that targets both supply and demand, rather than just flooding the market with cash, would be a far more effective way to help Americans achieve the dream of homeownership without destabilizing the economy in the process.

If you are looking for some down payment assistance, we have several options that don’t involve waiting for prices to go up in the meantime. Reach out to BrightSide Lending to see what options are available and best for you and your family.