Update 802 — Housing and 2024 Election:
Affordability as Campaign’s Sleeper Issue
Last week’s U.S. jobs report set off market tremors as far away as Asia this week, amid speculation about recession in the U.S. and some calls for an emergency Fed meeting to cut interest rates, both of which dissipated as the week progressed. Yesterday’s reassuring if incidental drop in initial jobless claims helped steady capital markets and policymakers’ nerves.
Behind macroeconomic vicissitudes lies a chronic problem issue that generates fewer headlines but has been building for decades and has the attention of voters this year: housing affordability. Once seen as a key to a middle-class lifestyle and financial stability, homeownership has become increasingly out of reach for a growing number of Americans. And increases in rent eat into the incomes of those who do not own a home. Taken together, housing is now adding to Americans’ cost of living at a time when daily expenses have already made it more difficult for families to get by. This week, we discuss how housing affordability in America became a crisis and the implications of the issue for the 2024 election.
Good weekends, all…
Best,
Dana
America is facing a crisis of housing affordability, one that is decades in the making and has been exacerbated by economic headwinds and bad policy choices. As housing becomes more expensive, greater strain is put on the finances of American families, especially those with lower- and middle-level incomes.
As a result, over time, housing affordability has become a much more pressing and salient issue for voters, with polls showing a growing percentage of Americans now citing housing costs as their most important financial problem. Politicians are increasingly being confronted on the issue by constituents, making this crisis harder to ignore this cycle. How did housing affordability in the U.S. reach a crisis point, what Washington has done about it so far, what can the federal government do, and what are Democrats and Republicans promising to do about it in 2025 and beyond?
Current State of the Housing Market
As housing costs have risen, Americans’ ability to pay for it has become increasingly strained. Housing inflation has remained elevated despite inflation cooling off overall. As the June CPI report demonstrated, shelter inflation — the CPI’s measure of increases in housing costs — fell to a 5.2 percent annual rate, a stark decline from a high of over 8 percent in early 2023. But shelter inflation is still about 2 percentage points higher than its pre-pandemic baseline.
This continuous rise in housing prices can be seen in both the housing market and the rental market:
- According to Redfin, the median sales price for a home in the US was $442,451 in June, a nearly 34 percent increase since January of 2021.
- According to the National Association of Realtors, existing home sales fell 5.4 percent both month-over-month and year-over-year in June.
- Sales of new US homes declined 0.6 percent in June to a seven-month low.
- Single-family housing starts fell 2.2 percent in June to an eight-month low.
- The rental market has not fared any better, with rents jumping 30.4 percent nationwide between 2019 and 2023.
To summarize, housing costs have increased across the board, with Americans less able to shoulder these costs. Per the Joint Center for Housing Studies at Harvard, 42 million households were cost-burdened in 2022, meaning they paid more than one-third of their monthly income on housing. That number included 22 million renter households, or half of all renter households. The number of cost-burdened households is unlikely to have improved since 2022 as housing costs continue to rise. The rise in housing costs is partially responsible for the rise in homelessness, with a record-high 653,104 people experiencing homelessness in a single night in January 2023, a 12.1 percent increase over the previous year.
Source: Joint Center for Housing Studies of Harvard University
Shortage Behind the Housing Crisis
Numerous causes are contributing to the housing affordability crisis. But the most straightforward reason is a shortage of housing, affordable or otherwise. While the exact number is disputed, experts say that America faces a shortage of between 4 million and 7 million homes. The shortage of housing for families with the lowest incomes is even worse: only 34 affordable and available rental homes exist for every 100 extremely low-income renter households as of March.
There are numerous reasons for this housing shortage. For one, America has simply failed to build enough homes to keep up with population growth. Additionally, construction costs have been hit by inflation as materials, labor, and space for construction have all become more expensive. Tariffs on steel and aluminum have further increased construction costs. The construction industry has also been hit by labor shortages, further increasing costs and complicating plans to build more housing units.
Other problems are more long-term. COVID-19 wreaked havoc on supply chains, from which the construction industry has not entirely recovered. Additionally, new home builds still lag behind their pre-Great Recession levels. Housing construction is further restrained by restrictive zoning laws, which are designed to keep home values high but also make it more difficult for developers to build enough housing to address a given locality’s needs.
Another important factor is mortgage rates. The rates on 30-year fixed mortgages have increased dramatically since their pre-pandemic levels of around 3.5 percent, peaking at nearly 8 percent in October of 2023 before falling to 6.47 percent, as the most recent statistics from Freddie Mac show.
The biggest reason that mortgage rates have remained relatively high is interest rates. As the Fed increased interest rates to curtail inflation, borrowing costs increased across the board, including for mortgages. Naturally, higher borrowing costs mean fewer prospective homeowners can afford to take out a mortgage, thus decreasing home sales. At the same time, current homeowners who are “locked in” to their lower-rate mortgages are likely to postpone putting their homes back on the market, thus further driving down the housing supply.
Freddie Mac Mortgage Rates: October 2019 – Present
Source: Freddie Mac
One final factor: institutional real estate investors and corporate landlords. According to Redfin, real estate investors bought 19 percent of homes sold in the first quarter of 2024. Investors represented an even bigger share of the affordable housing market, buying 26 percent of low-priced homes. These investors routinely outbid first-time home buyers with their ability to pay more upfront with cash. These same companies take homes off the market and turn them into rental housing, making it harder for households looking to make the leap into homeownership.
Worse still, evidence suggests that corporate landlords negatively impact minority and lower-income households, such as by decreasing homeownership, charging exorbitant rents, and evicting minorities at a disproportionately high rate. That said, some have countered that the increased access to capital available for corporate landlords allows them to make more renovations to housing stock than average homeowners, improving neighborhood and housing quality and potentially increasing access to better neighborhoods for low-income families.
Housing and Swing Voters in the 2024 Election
The housing crisis could have serious implications for the 2024 election. For one, as housing costs have increased, the issue has become increasingly salient for voters. According to Gallup, housing costs were the second most important financial problem facing American families behind inflation and the cost of living. Housing costs were especially salient for lower- and middle-income families. Another poll showed that 74 percent of respondents believed that the lack of affordable homes was a significant problem in the United States, with 65 percent of respondents reporting that home prices in their community had become less affordable over the past year.
The issue of housing is of particular concern in swing states. According to Redfin, swing-state housing payments have nearly doubled since 2020, making homeownership unaffordable for the average family.
Source: Redfin
As for rent, the metropolitan areas of Arizona, Georgia, Michigan, North Carolina, Pennsylvania, and Wisconsin saw an average rent increase of 44 percent between 2019 and 2024. The affordable housing problem is particularly acute in places like Nevada. In Clark County, which includes Las Vegas, median rental prices are 30 percent higher than they were in January 2020. The Las Vegas metro area is short of 78,000 housing units, representing housing for about 312,000 people. Another hard-hit state is Wisconsin, which saw the biggest jump in median home sale prices over the past year among the main battleground states.
One specific voting demographic that could be influenced by the housing crisis is young people. 82 percent of registered voters under 30 stated that it was harder for them to buy a home than it had been for previous generations. Over twice as many adults under 50 say that housing costs are their top concern than for those 50 and older. Disillusionment over housing availability and costs and their impact on economic prospects may drive young people away from the polls. Polls provide evidence that young people’s anger over such cost-of-living issues in America and abroad has helped fuel the rise of political populism. For any politician looking to court the Gen Z and Millennial vote, housing is not an issue they can ignore.
The Political Response to the Crisis
- Biden-Harris Administration
The housing crisis has triggered a response from Washington, though the most ambitious attempts to deal with the crisis have all failed to survive the legislative process. The Biden-Harris Administration had hoped to address housing as part of the Build Back Better Act, which included more than $170 billion for a range of measures to tackle housing affordability. These included expanding the Housing Choice Voucher program, providing billions to renovate and rehabilitate public housing, and expanding programs for building and rehabilitating affordable housing. When the Build Back Better Act was shelved, many of its housing provisions had to be scrapped in its replacement, the Inflation Reduction Act, to reduce the bill’s price tag.
Despite this setback, President Biden used the power of the Executive Branch to take action on the housing crisis. In 2022, the Biden-Harris Administration released its Housing Supply Action Plan, a mixture of administrative and legislative actions with the goal of closing America’s housing supply shortfall in five years. The plan included incentives for land use and zoning reform, financing mechanisms to build and preserve more housing where financing gaps currently exist, and the expansion and improvement of existing forms of federal financing. In Biden’s 2024 budget proposal, the president proposed a slew of housing measures such as expanding the Low Income Housing Tax Credit (LIHTC), creating a tax credit for first-time home buyers and sellers, and taking other measures to build or renovate 2 million homes. Last month, Biden called on Congress to pass legislation to make corporate landlords cap annual rent increases to no more than 5 percent or else lose access to depreciation write-offs.
Vice President Harris has also used her position to push for more federal action on affordable housing. In May, Harris announced $5.5 billion through HUD to boost affordable housing, with measures including $1.3 billion in additional funding for the HOME Investment Partnership Program, $214 million for the Housing Trust Fund, and $3.3 billion for Community Development Block Grants. Back in June, Vice President Harris announced $85 million in new grants under the Pathways to Removing Obstacles to Housing (PRO Housing) program aimed at helping targeted communities lower housing costs and boost housing supply.
- Congress
In addition to Biden’s efforts, Congress has made some attempts in the past few years to pass legislation to address the housing crisis, but no major legislation has passed both chambers even when they had considerable bipartisan support.
- Just recently, the Tax Relief for American Families and Workers Act (H.R. 7024), a bill that would have expanded LIHTC among other things, died in the Senate despite passing the House 357-70.
- Another bill that has popular support is the Yes In My Backyard (YIMBY) Act (S 1688), a bill that would encourage states and localities to lift restrictive zoning laws, which once again has bipartisan support but has not made any movement past committee.
- Other more ambitious legislation, such as Congresswoman Maxine Waters’ Housing Crisis Response Act (H.R. 4233) has similarly fizzled out without receiving so much as a floor vote.
- Other legislation has been put forward to curtail institutional real estate investment in the housing market. One piece of legislation to deal with the problem is the End Hedge Fund Control of American Homes Act (S. 3402/H.R. 6608), meant to rein in private equity firms, hedge funds, and real estate investment trusts from purchasing single-family homes. The bill is currently stuck in committee.
With the 2024 election fast approaching, it is highly unlikely that any more housing legislation will make its way through Congress for the remainder of the term.
- The GOP
As to be expected, the Republican response to the housing crisis has been to push almost exclusively for a supply-side approach. The GOP’s 2024 platform calls for reducing mortgage rates by slashing inflation, opening federal lands for home construction, creating tax incentives for first-time homebuyers, and cutting regulation. Project 2025 does not mention direct plans to deal with affordable housing, stating that building affordable housing is not the solution and that the federal government should avoid weighing in on land use. It does, however, recommend breaking up HUD and transferring its functions to separate federal agencies, states, and localities. It also calls for reversing “all actions taken by the Biden Administration to advance progressive ideology,” which means reversing President Biden’s policies to promote fair housing and energy efficiency standards in homes. Project 2025 also would have the Department of the Treasury end the conservatorship of Fannie Mae and Freddie Mac and put plans in motion to privatize both.
As for Trump, his administration did precious little to promote affordable housing. He removed fair housing protections that Biden later reinstated and pushed for cuts to housing assistance programs and public housing. The Trump Administration also flip-flopped on zoning reform, initially promising federal grants to localities that reduced regulations on apartment construction before completely reversing by voicing his support for single-family zoning and opposition to multi-family developments in low-density neighborhoods.
On the campaign trail, Trump has spoken very little about housing directly, mostly tying it to inflation and rising cost-of-living expenses. Trump released a vague proposal on Truth Social to build ten new American cities on federal land, and in another video promised to “ban urban camping” in order to criminalize unsheltered homelessness. Not surprisingly, Trump also blamed immigration for the housing crisis, promising that his crackdown on undocumented immigrants would lower housing costs. Should Trump and the GOP wish to reverse course and offer helpful solutions to the affordable housing crisis, it still has three months to do so.
- Democrats
So far, Harris has not deviated far from President Biden with her housing agenda, in particular embracing President Biden’s call for capping rent increases by corporate landlords. While Harris and the Democrats are still settling on the details of their platform, they have a real opportunity to take bold action. According to a national survey conducted by Pew Charitable Trusts, at least 7 in 10 Americans favor several zoning reform policies that would allow the building of more apartments, and a majority favored policies that would allow more homes such as permitting reform and converting commercial real estate to housing. Another poll showed that 74 percent of Americans, including a solid majority of both Democrats and Republicans, supported policies to expand investment in housing development programs for affordable housing. Voters seem to be less enthusiastic about the prospect of building low-income housing in their neighborhoods than they are about building it in general.
On this front, Tim Walz’s actions on housing as Governor of Minnesota could provide some guidance as to what Kamala Harris and the Democrats could include as part of the Party platform. In 2023, Governor Walz signed an omnibus bill that resulted in $2 billion dedicated to housing and homelessness resources. Some highlights of the omnibus include:
- $200 million in one-time resources for a housing infrastructure program
- $150 million in downpayment assistance for first-time homebuyers
- $90 million for the purchase and rehabilitation of older, low-rent homes that would otherwise be purchased by investors and lose their affordability.
- $46 million in statewide rental assistance
- $45 million to the state’s Family Homelessness Prevention and Assistance program.
An Election Opportunity
Housing is a central reference point for the standard of living for all Americans. Access to good housing plays a key role in economic, educational, and health outcomes for American families. As housing becomes less affordable for an increasing number of Americans, its salience for voters will only grow. With a massive housing shortage and rising housing costs, pressure is rising for politicians to do something about it. While bipartisan support for a number of policies to address the housing crisis exists, Congress has thus far failed to take meaningful, let alone comprehensive action. . Whichever party can convince voters that it has a vision and strategic plan to address the housing issues cited above will have an advantage come November. Here lies a golden opportunity for Kamala Harris and the Democrats to make housing a key part of their platform and thus reassure voters that they care about the issues that matter to them. 20/20 Vision encourages Democratic candidates and lawmakers to take housing seriously and create a message that gives voters hope that the crisis will be addressed.