I also found it odd that the article kept referencing “investors”. The goal should be affordable homes for normal people who need housing, not real estate investors.
After reading the article, it appears clear that the the administration advisers are saying the new housing plan would let buyers tap 401(k) funds for a home down payment without the usual early-withdrawal penalty. Germany has something very similar to this policy and it has been widely lauded as a success.
My take: For median-income households, the plan under discussion would let individuals pull money from a 401(k) for a home down payment withoutl penalty or taxes, helping buyers overcome the big upfront cost that often stands between them and their first home. Because 401(k) loans or withdrawals today generally trigger substantial taxes and penalties if you’re under 59.5 years old, this change could meaningfully reduce that barrier and broaden the access to homeownership immediately upon enactment. Beyond just tapping savings, the advisers are speculating the administration might include a mechanism to reinvest home equity back into the 401(k) retirement account over time, for example, by allowing a portion of home value growth to count as an asset inside the 401(k) so that the account “grows” alongside the house, offsetting retirement savings losses caused by the withdrawal. Those mechanics, like how much can be withdraw, whether there are caps or limits, how repayment would work, or whether it applies only to first-time buyers, are still being worked out and haven’t been finalized so Caveat emptor; this is speculation on my part based on the read. I like the idea and I'll be contacting my US state representatives with my endorsement and recommendations including the proposed first-time buyer restriction.
If someone is in a great housing market, and is willing to downsize in retirement, maybe it works out, but there is luck mixed in there… along with personality and emotion. Your idea of rolling some equity into the 401k is an interesting one that may help quell some fears. Of course the devil is in the details, and if it requires some complicated work on the part of the buyer once the home value has grown, I can see a lot of people missing out on such a program.
My dad talked about potentially downsizing to a condo about 5 years ago, but hasn’t done it and I don’t think he ever will. There is too much identity and emotion tied to owning a nice home for him.
Germany also enacted a similar law back in 2008, allowing for the Wohn-Riester, which is basically a 401k but for home purchases or paying off your principal. Allowing a 401k to be used for both retirement and home purchases allows for it to become a unified Riester.
These single use tricks make sure that the housing market will go up for yet another couple of year. But every time a trick like this is applied, it will increase the risk in the system. There are also the issue that there are only that many tricks one can use.
But seriously, anything that increases demand, like making it easier to buy a house using your 401k just increases house prices. Where are all the “rent control is bad economics” folks now?
Complaining about zoning even though in a large portion of America, zoning is orthogonal to housing affordability [0] and supply, especially because no bank wants to finance residential real estate anymore - they'd all rather invest in commercial real estate which has better and more consistent returns (logistics parks, data centers, factories during CHIPS and IRA) [1].