Home affordability in the United States has reached a record low with housing costs rising faster than incomes
Transcript:
RALPH MCLAUGHLIN: Part of the reason why we are in such an affordability crisis now is that over decades, not years, over decades, we haven’t built enough homes for a growing population. And because the housing market works like an auction. Prices go up even more when there is a limited supply. So that’s one reason we need to build more homes. Second is that we should expect incomes to continue to go up like I mentioned. We do expect buying power to increase this year, but we expect that trend to continue over the next couple of years as inflation is tamed at least inflation due to the COVID 19 pandemic and incomes grow.
That gives more disposable income to households. So if we can build more homes and reduce the supply side effect and combine that with a healthy, growing economy, that will tend to bring an increase in wages, that should start to open up opportunities for those renters who have been on the sidelines that really want to get their door in the housing market. But again, these are forces in nature that act more along geological time, like glaciers carving their way through a Valley. They don’t happen instantly. But we do expect this trend to continue through 2025 and into the rest of the decade. That would be the best scenario for improving housing affordability and improving the prospects for homeownership amongst young households.
CONWAY GITTENS: So we’ve been talking a lot about making home ownership more affordable. And the big question that I’ve been thinking about is, how do we do that as a nation without actually sparking an inflation in home prices like we’ve never seen before. And the reason why I ask that is one of the things that caused inflation to go up during the pandemic was the stimulus money. And the stimulus money was given out. And so there was a lot of demand. And then supply had shortages. So there was a lot of demand chasing fewer supply. If we put some of these programs into place, how do we do that without then causing prices to go even higher in a market, which already feels out of reach for a lot of people?
RALPH MCLAUGHLIN: I mean, if you talk to any housing economist who’s been around even for just a few years, I think they’ll tell you, the issue we have with housing affordability is that we have a supply problem, not a demand problem. And that supply problem, I think, as I mentioned earlier, is played out over decades. This is not a problem. We’ve gotten to ourselves overnight. I mean, we’re going on 20 or 30, even 40 years, the causes of these problems. So it may be politically very tempting to try to grant your way out of the problem by giving people more money to make housing feel more affordable. But because the housing market works like an auction, what tends to happen is people will just take that money and they’ll put it even into the housing market further, which causes prices and rents to rise even more so. Like you said, you mentioned stimulus money.
A way that you could try to temporarily stopgap and affordability issues to give, say first time buyers 25, $50,000 in grant to go buy their first home, but that in the long run would just lead to higher prices. That doesn’t get to the root cause of the problem, which is a supply issue. So it’s taken us decades to get to this place. It’s going to likely take us decades to get us out. But the good news is that both sides of the aisle are aware of this issue. This last presidential election was the first, at least in any memory that I have. And folks that are older than me, I think, can vouch for this, where there’s been serious supply side discussion in the housing market at the federal level. So that’s good news. If you’re going to try to dig your way out of this problem, that may take decades. It’s good news to have both sides of the aisle talking about that because it means that there could potentially be real solutions there to help get affordability back to where we were.
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