Trump’s Housing Ideas: What Helps, What Doesn’t, and What Backfires
An evidence-based evaluation of six housing proposals: monetary policy intervention, 401(k) and 529 withdrawals, extended-term mortgages, mortgage portability, investor restrictions, and capital gains
President Trump has advanced a broad set of housing policy ideas touching monetary policy, mortgage finance, taxation, and household savings. Some proposals could modestly improve housing mobility or supply. Many would have limited effect—or create new financial risks without addressing the constraints that actually bind. This memo evaluates the proposals as written, drawing on empirical research and institutional evidence to separate policies that improve affordability from those that largely reshuffle risk or distort incentives.
This memo evaluates a set of housing policy ideas associated with President Trump.
Given his background in real estate, it is not surprising that he has advanced a wide range of proposals touching mortgage finance, taxation, and housing market structure.
The sections below assess which ideas are more likely to improve affordability and housing supply, which are likely to have limited effect, and which could be counterproductive. Several proposals are accompanied by technical appendices, available behind a paywall, that provide more detailed quantitative and institutional analysis.
Monetary Policy and Mortgage Purchases: The goal is to lower interest rates, particularly mortgage rates, through easier monetary policy and targeted mortgage-bond purchases. But the Federal Reserve does not directly control the 10-year Treasury yield or inflation expectations, which are the primary determinants of long-term mortgage rates. Efforts that pressure the Fed or weaken its independence risk raising inflation expectations and could ultimately push long-term rates higher rather than lower.
Some proposals would also direct federal housing agencies, such as Fannie Mae and Freddie Mac, to purchase additional mortgage-backed securities in an effort to push mortgage rates lower. But even purchases on the order of a few hundred billion dollars would be small relative to the overall mortgage market and unlikely to materially affect long-term mortgage rates, which continue to be driven primarily by the 10-year Treasury yield and inflation expectations rather than by incremental agency demand.
Changing Savings Rules Governing 401(k) Plans and 529 Plans: Proposals would allow retirement and education savings to be used more flexibly for non-traditional purposes, such as housing or student debt.
The central risk is increased leakage from retirement systems, which already face substantial early withdrawals and inadequate saving. For empirical evidence on the link between pre-retirement use of 401(k) funds and weaker retirement security, see the technical appendix, which cites the academic literature on this topic starting with one of my own articles.
Benefits flow mainly to households that already have meaningful 401(k) or 529 balances, leaving constrained households largely untouched and raising distributional concerns. Under standard mortgage underwriting, total monthly debt payments—including mortgage, student loans, and other consumer debt—generally must remain below roughly 38 percent of income, so households constrained by student debt or low earnings typically cannot qualify for a mortgage regardless of access to 529 funds.
Even without new legislation, many 401(k) plans already permit participant loans for a range of purposes, and recent rule changes have made hardship withdrawals easier in some plans by eliminating prior suspension requirements. The SECURE Act 2.0 further expanded access through limited penalty-free emergency withdrawals and employer-sponsored emergency savings features. In addition, current IRA rules already allow up to $10,000 in penalty-free withdrawals for a first-time home purchase, while extending a similar exception to 401(k) plans would require new legislative authority. Taken together, these existing flexibilities underscore that additional expansions would primarily increase leakage from retirement systems rather than
50-Year Mortgages: This would be a very bad idea. Extending a $500,000 mortgage at 6.0 percent from 30 years to 50 years lowers the monthly payment only modestly, from about $3,000 to about $2,630, a reduction of roughly $370 per month. In exchange, it would substantially increase the share of households carrying mortgage debt into retirement, effectively making mortgage debt in retirement the norm rather than the exception.
Carrying large mortgage balances into retirement materially increases household financial risk by locking retirees into fixed debt service when incomes are stable or declining and vulnerability to health and longevity shocks rises. Compared with a standard 30-year mortgage, a 50-year term dramatically delays principal repayment and makes it far more likely that borrowers will still be servicing mortgage debt well into retirement. This undermines the traditional role of home equity as a source of retirement security and illustrates why extending mortgage maturities addresses monthly payments only superficially while compounding long-run financial risk.
For a detailed assessment of how mortgage debt in retirement affects household balance sheets, tax flexibility, and longevity risk, see:
https://www.economicmemos.com/p/when-mortgage-debt-meets-retirement
Portable Mortgages: Portable mortgages are meant to help homeowners who are locked into very low interest rates by allowing the existing mortgage balance to transfer to a new home at the original rate. In addition, many homeowners may still be reluctant to move if the transaction requires taking on additional borrowing at today’s much higher rates—for example, to purchase a more expensive home, bridge timing gaps, or cover transaction and closing costs.
Making mortgages portable would also be a major change to how U.S. mortgages are structured and sold, since most loans today are designed to be paid off when a home is sold and then bundled for investors based on that expectation. If more loans stay outstanding longer than anticipated, risk shifts to lenders and investors, who may respond by charging higher rates on new mortgages. A useful historical warning is the savings-and-loan crisis, when institutions were damaged because they were stuck holding long-term, low-interest mortgages while their own costs rose; portability could recreate similar risks unless they are carefully priced and managed.
Homeownership Depreciation: This idea has been floated by President Trump as allowing a depreciation-style tax deduction for owner-occupied homes. It would do little for households shut out of buying because of low income or high student-loan debt, since the benefit flows through the income tax system and is largest for higher-income households with substantial tax liability.
Depending on design, it could encourage people to stay in their homes longer in order to keep claiming the deduction, potentially reducing turnover. What is the next step -- accelerate depreciation schedules?
A clear and persuasive critique of this idea is provided by the American Enterprise Institute, which explains why homeownership depreciation would largely benefit incumbent owners and worsen housing-market distortions rather than solve affordability problems: https://www.aei.org/economics/trump-gets-housing-taxation-backwards/
Restrictions on Institutional Investors: This is another bad idea that is largely politically motivated and unlikely to meaningfully improve housing affordability. Institutional investors account for a relatively small share of single-family housing overall, and limiting their participation does little to address the core problem of inadequate housing supply. Such restrictions could also reduce rental availability and discourage capital from flowing into housing construction or rehabilitation, potentially tightening markets rather than easing them.
A clear and well-argued explanation of why restricting institutional investors is unlikely to help affordability—and may instead backfire—is provided by the American Enterprise Institute, which carefully distinguishes headline rhetoric from the underlying market realities: https://www.aei.org/housing/why-targeting-investors-wont-fix-the-housing-market/
Eliminating Capital Gains Taxes on Primary Home Sales: Eliminating capital gains taxes on primary home sales could materially increase housing inventory by reducing lock-in effects, especially for older homeowners. Under current law, many households delay moving because remaining in the home until death allows heirs to receive a step-up in basis and avoid capital gains taxes entirely, discouraging downsizing or relocating earlier. Removing capital gains taxes on primary residences would make it easier for some households to move up and potentially free starter homes for younger and first-time buyers.
In that sense, capital gains reform could be one of the more economically meaningful elements of recent housing supply proposals by directly addressing tax-induced lock-in. But approaches that focus narrowly on housing risk could overstate benefits if they are not paired with broader capital gains reform that addresses revenue, step-up in basis, and the treatment of other assets. A housing carve-out may improve mobility at the margin, but a lasting reduction in market distortions would require a more comprehensive framework for capital gains taxation (see Capital Gains Reform Can’t Be Just a Housing Patch: https://www.economicmemos.com/p/capital-gains-reform-cant-be-just)
Technical Appendix:
Technical appendices provide additional information and citations to economic literature on potential adverse impacts of these housing proposals. Appendix A shows that expanded pre-retirement access to 401(k) funds, to facilitate downpayments on houses would likely be associated with increased leakage and weaker retirement outcomes. Appendix B documents that liberalizing expenditures from 529 plans for the purpose of facilitating home ownership would not target the people who are having trouble making their first home purchase. Appendix C analyzes how mortgage portability could shift risk within the mortgage and securitization system without materially improving affordability.
