The Housing Crisis: Overcoming Political Obstacles to Affordable Homes
Tackling the housing crisis requires bold, data-driven solutions, yet the public's misguided beliefs about what works are a significant obstacle.
The Story:
The housing market in the United States is currently facing significant challenges, with high prices and mortgage rates making it increasingly difficult for many Americans to afford a home. This issue has become a major concern for the Democratic party as we approach the upcoming elections in November. In response to this crisis, the Biden administration has proposed several measures, including providing tax credits to first-time and middle-class homebuyers to help offset the high mortgage rates. Additionally, some Democrats have suggested that the federal government should pressure the Federal Reserve to lower interest rates in an effort to ease the burden on potential homebuyers. However, these proposals are unlikely to have the desired effect.
Although the fed funds rate does influence what happens with other rates when it comes to mortgage rates, they are tied to those on US Treasury notes and bonds and debt securities backed by home loans. Those rates are mostly determined by investors' outlook for economic growth and inflation rather than where the fed funds rate is.
The primary driver of the housing affordability crisis is not a lack of demand, but rather a shortage of supply. As one study found, the median price of existing homes has continued to rise even as the Federal Reserve has raised interest rates, and homes are still selling quickly, with a significant percentage selling above the asking price.
Estimates suggest that the U.S. needs an additional 3.2 million homes to meet current demand. This can be achieved through a combination of incentives for builders and developers, as well as changes to zoning laws that have historically limited new construction.
Reforms designed to facilitate affordable housing for middle-income households often have the unintended consequence of further constraining the overall supply of housing. As a new report from the UC Berkeley Terner Center for Housing shows, inclusionary zoning' policies that require a share of units to be rented out at below-market rates can make it uneconomical to build, and the eligibility requirements limit the number of people who can benefit while creating significant bureaucratic hurdles.
The research suggests that the public's understanding of the supply-and-demand dynamics in the housing market is limited. While people generally grasp these principles when it comes to other commodities, they often fail to apply the same logic to housing. This suggests a need for greater education and public awareness around the factors driving the housing affordability crisis and the most effective ways to address it.
Interestingly, the survey also found that YIMBY (Yes In My Backyard) solutions such as changing zoning to allow for more construction are both less popular and viewed as less efficacious. Contrary to the "home voter hypothesis" that supply restrictions represent a deliberate effort to inflate housing costs, the research finds that renters are more hostile to denser zoning than homeowners are.
The View:
The housing crisis in the United States is a complex and multifaceted issue that demands a nuanced and evidence-based approach. The proposals put forth by the Biden administration and some Democrats, while well-intentioned, are ultimately misguided and unlikely to produce the desired outcomes. Attempting to coerce the Federal Reserve into lowering interest rates or providing financial incentives to homebuyers is a flawed strategy that fails to address the underlying causes of the housing affordability crisis. These measures may provide temporary relief, but they will likely lead to unintended consequences, such as further driving up home prices and exacerbating the shortage of available housing.
The real issue with housing is the lack of supply. Many homeowners don't want to sell — a record 39% of homes have no mortgage and more than 60% of owners with loans have locked in rates below 4%. The number of homes actively listed for sale has plummeted from a peak of around 4 million in 2007 to some 1 million currently. This is despite the number of households in the US having risen by more than 10 million, according to the US Census Bureau. And, as the data for days on the market before being sold show, quality houses that do come up for sale are quickly purchased.
The real solution lies in addressing the fundamental imbalance between supply and demand in the housing market. By implementing policies that encourage and facilitate the construction of new homes, the United States can begin to alleviate the housing crisis and make homeownership more accessible to a wider range of Americans. This will require a combination of incentives for builders and developers, as well as reforms to zoning laws and other regulatory barriers that have historically limited new housing construction. It will also necessitate a concerted effort to educate the public on the true drivers of housing affordability and the merits of a supply-side approach. Ultimately, the success of any efforts to address the housing crisis will depend on the ability of policymakers to overcome the political and ideological obstacles that have long stood in the way of meaningful reform. By adopting a more pragmatic and evidence-based approach, we can work towards a future where the American dream of homeownership is within reach for more families across the country.
TLDR:
The housing market's lack of affordability is a major concern for voters, but the proposed solutions, such as bullying the Federal Reserve or offering tax credits, are misguided and unlikely to address the root problem.
The primary issue is the shortage of housing supply, which can only be resolved through a combination of incentives for builders, changes to zoning laws, and boosting consumer confidence.
Attempts to stimulate demand through financial incentives risk further inflating home prices, making housing less affordable for many Americans.
The public's skepticism towards supply-side solutions like upzoning and increased construction is a significant political obstacle, as voters tend to favor ineffective policies like rent control and subsidies.
Bipartisan, quiet efforts by state legislators and governors to reform zoning and increase housing supply offer a more promising path forward, rather than partisan battles that are unlikely to garner public support.
Designing "affordable housing" policies that take a more flexible, expansive view of middle-class eligibility could help overcome political barriers and deliver more units.
Tackling the housing crisis requires a clear-eyed, data-driven approach that prioritizes increasing supply, even if it means challenging popular but misguided beliefs about what works.
Insights From:
Affordable Housing Won’t Come From Bullying the Fed - Bloomberg
Want to Reduce the Cost of Housing? Build More of It - Bloomberg