“We have a housing crisis in our country. We need millions of homes,” said Scott Turner, President Donald Trump’s pick to run Housing and Urban Development (HUD). With skyrocketing prices for both home sales and rentals, it’s hard to disagree. Indeed, during his committee hearing, both Democrats and Republicans agreed on one key thing: There are not enough houses. But the concordance goes only so far, and it seems that if today’s youth want their slice of the American Dream, it will take a lot more than a rapid expansion in building projects.
We joined Liberty Nation News’ Economics Editor, Andrew Moran, to figure out what it would take to end the burgeoning crisis.
American Dream Lost?
Mark Angelides: Andrew, what’s the current situation? As in, how many houses does the United States need, and what’s the trend in the rental sector?
Andrew Moran: The numbers vary by organization, but the two most touted are from Realtor.com and Zillow. Realtor.com estimated the gap at the end of 2023 was more than 7 million. Zillow stated this past summer that the housing shortage is approximately 4.5 million. Either number is immense.
MA: It seems that the GOP and Democrats are focused on expanding housing stock. But isn’t this only one side of the equation? With a record influx of people across the southern border – whether illegal or using systems like the now-defunct CBP One app, doesn’t that deplete the supply and increase the costs?
AM: This is more of a gray area. So, first, yes, the data indicate that an increase in immigration, whether legal or illegal, can exacerbate supply shortages and increase prices because of strengthening demand. Various Federal Reserve officials have touched upon this subject, including Fed Gov. Michelle Bowman and Minneapolis Fed President Neel Kashkari, who noted that the inflow of newcomers could exacerbate affordability conditions in geographic areas already facing challenges.
That said, illegal immigrants are far more likely to rent. Research suggests that most households helmed by undocumented individuals are renters. Several states have tried to transition illegals to homeowners through taxpayer-funded down payment assistance. Still, overall, illegals are renters, so with supply constrained only in this corner of the US housing market – the National Low Income Housing Coalition projects that the United States maintains a shortage of 7.3 million available and affordable rental homes to low-income renters – they are pricing out American renters.
MA: Scott Turner said there were major shortages of housing across pretty much all levels, and Democrats on the committee agreed with him. Here’s a quote: Sen. Tina Smith (D-MN) said, “I think you and I agree that the United States needs to add many more homes across the whole spectrum, and we need to increase the supply that’s going to help lower rent … it’s basic supply and demand.” So if this is a bipartisan issue, why haven’t we seen any action on the American Dream?
AM: First, legislation – Tax Relief for American Families and Workers Act of 2024 – has stalled. It contains tax credits for housing construction activity. Democrats say it would build 200,000 additional affordable units and tackle more than a decade of underbuilding. Republicans warn the bill has too many things stuffed into it.
Second, Democrats have resisted repealing specific laws that have added bureaucracy to the housing file and grants that have benefited wealthy areas of the country.
Finally, housing is certainly more of a state and local issue. These places need to embrace reforms, such as changing restrictive zoning laws, which is challenging because of NIMBYism (Not In My Back Yard). Some municipalities also slap enormous development charges on new builds or maintain outdated rent control laws.
In the end, another vital component is interest rates, which are indirectly out of Congress’ hands. When interest rates are lower, mortgage rates will decline since they track US Treasury yields. But how do rates fall? A few things: The Fed cuts the policy rate because inflation is falling. But how does inflation fall? The US government needs to stop spending and borrowing, and the central bank needs to stop printing money. You see this in the US government bond market, with yields rising even as the Fed cuts rates.
It should also be worth noting that mortgage rates cratered to all-time lows when the Fed slashed rates to 0% at the onset of the pandemic. This created what economists called the golden handcuffs effect. Current homeowners do not want to list their homes on the market because they have a gold-plated 3% to 4% 30-year mortgage. Why bother selling their home they bought below all-time lows with a record-low rate to move somewhere else more expensive at a higher fixed-rate mortgage?
And Found?
MA: If Turner is confirmed – which seems likely – what can he actually do as head of HUD?
AM: One initiative President Donald Trump, Republicans, and Democrats endorsed was opening up federal lands. Under the previous administration, HUD was looking at unlocking surplus public land for affordable housing. Turner could likely build upon this campaign. However, it is not 100% that it will work. First, much of the federal land portfolio is situated in Alaska. Second, a sizable portion of the federal lands is in areas that will be tough and expensive to develop. Third, housing experts say the best places to build are located just outside of cities and towns.
One housing economist told me that incentivizing density and transit would be one of the best uses of federal resources for housing policy.
Nevertheless, Sen. Mike Lee (R-UT) proposed legislation a couple of years ago: Helping Open Underutilized Space to Ensure Shelter Act of 2022 (HOUSES Act). The bill aims to construct 2.7 million new homes and reduce shortages in Alaska, Arizona, Idaho, New Mexico, Nevada, and Wyoming.
MA: I think everyone agrees that part of the American Dream is homeownership. It builds wealth, creates stability, and, in the near term, increases credit ratings. Looking forward, if ownership increases for Americans, what does this do to the broader economy?
AM: Generally speaking, yes, homeownership is a positive for the broader economy. Homeowners build equity; housing demand creates jobs; community goods and services are stimulated, and capital formation ballons. Of course, the downside is that you have something like the Global Financial Crisis in 2008, which the US government and the Federal Reserve primarily caused. But that is a story for another day.
MA: It seems that this isn’t, however, a uniquely American problem. What are the global factors that brought us to this point?
AM: It is comparable to what occurred in the United States: Central banks slashed interest rates, economies worldwide failed to build enough housing over the years, and regulations and taxes have curtailed housing construction. Other countries, like Canada, decided to increase populations without addressing housing affordability, so now the average home price is north of $700,000.
MA: Final word, Andrew. Realistically, what do you expect to see in this arena over the next four years?
AM: As I said earlier, this will take several years to address. Early forecasts suggest that national home prices could rise by 4%, national home sales will be minimal, and mortgage rates will remain between 6% and 7%. The good news is that shelter inflation may have plateaued, so relief could be on the way. Ultimately, at the federal level, if the administration opens up federal lands to development, from energy to housing, it should, in theory, help with wider price inflation.
