Housing to be a top political issue over next 2 years, TD Cowen says

Investing.com — TD Cowen analysts predict that housing will become a central political issue in the U.S. over the next two years, with a focus on the shortage of entry-level single-family homes and rental housing.

“We believe entry-level single-family and rental housing will continue to be in short supply even as there are signs of broader improvements in the market,” the firm said.

This shortage, particularly affecting young families, is expected to be a major point of focus for the GOP as they take control in 2025.

To address this, TD Cowen expects tax credit programs aimed at boosting construction to play a key role.

“The emphasis on entry-level housing should be positive for home builders, especially those that focus on lower-cost properties,” they stated.

The bank adds that the increased construction would also benefit building materials and appliance manufacturers alongside independent mortgage banks.

These mortgage banks are expected to see more business as increased entry-level housing demand leads more borrowers to turn to FHA programs, which traditional banks have largely exited.

TD Cowen also highlighted potential risks to institutional owners of single-family rentals, noting that Congress could revoke tax breaks, forcing these homes onto the market.

With housing inflation becoming a challenge for the GOP, TD Cowen pointed out that it could also present an opportunity “for Democrats to outperform in the mid-term election,” especially with home price increases outpacing inflation.

The firm suggests that the expansion of low-income housing tax credits and the creation of workforce housing tax credits may be added to next year’s tax package to address this issue.

They explain that these initiatives aim to reduce construction costs, ultimately helping to tame home price inflation.