Americans are concerned about the price of housing. According to a Housing Affordability Survey from the Cato Institute, 76% of those surveyed say it’s a bad time to buy a home, and 55% said they couldn’t afford to buy their own home “based on current prices.” In fact, CNBC reported that the average homebuyer is now 56 years old, a six year increase since July 2023.
Cost of Money
Part of that affordability problem comes from the cost of borrowing money. A report from Harvard economists suggests that the cost of borrowing money, a factor not calculated in Consumer Price Index (CPI), contributes to the bad economic vibes or the so-called ‘vibesession.’ “Consumers, unlike modern economists, consider the cost of money part of their cost of living,” the authors note. And that cost of living has gone up – “with higher rates, mortgage payments, car payments, and other credit payments required to finance everyday purchases have risen as well.”
High mortgage rates also impact supply. Many homeowners locked into mortgages with low rates can’t afford to move. The lack of mobility constrains supply and drives home prices up. And according to the Federal Reserve of St. Louis, the median home price has risen over $100,000 since 2019. Even with a rate cut, the most expensive purchase many Americans will ever make seems out of reach.
Congressional Proposal
To combat the housing problem, Congress proposed tax subsidies for low-income households – the Workforce Housing Tax Credit (WFHTC) and the Low-Income Housing Tax Credit (LIHTC), the latter of which would be an expansion of an existing program. While the Senate Finance Committee touts the potential benefits of the programs, the American Enterprise Institute argues that expanding subsidies would, “crowd out more private builders, and deter many families from advancing economically. Worst of all, it would do precious little to address the nation’s housing supply problem.” In fact, the LIHTC, established in 1986, has done little to increase housing supply. One study reported that, “that the impact of the program on the number of newly developed rental housing units appears to be small.”
Solutions
Market-based proponents propose other solutions. On the regulatory side, obstacles to cheaper building materials due to protectionist trade policies can drive up the cost to build a house. The Cato Institute recommends eliminating some of the tariffs on Chinese imports, which were, “imposed on dubious legal, economic, and factual grounds; have not achieved their primary policy aims.”
On the supply end, Cato recommends local governments “reduce and eliminate zoning regulations and reduce permitting fees.” Decreased zoning regulations would make it easier for companies to build houses and apartment buildings (a policy nearly two-thirds of Americans support). The think tank also suggests several federal reforms including making permanent state and local tax deductions and decentralizing energy standards.
During the campaign, Trump promised to free up federal land for housing. “Regulation costs 30% of a new home, and we will open up portions of federal land for large-scale housing construction,” he told the Economic Club of New York in September. “We’re going to open up our country to building homes inexpensively so young people and other people can buy homes.”
