‘We must do more’: Biden administration wants to build 500K starter homes to fix America’s affordable housing crisis — but will this be enough?

Affordability crisis

While job opportunities in the U.S. are looking positive heading into 2024 and the general inflation increases are slowing down, affording a quality place to live is still far out of reach for many hard-working Americans.

Three key factors have driven the affordability crisis in 2023. The first is home prices. To buy a $408,806 median-priced U.S. home without spending more than 30% of your income — a popular rule of thumb among personal finance experts — you would need to earn an annual income of at least $109,868, according to Redfin. That is up 8.5% from 2022 — and is $31,226 more than the typical household makes in a year.

Unfortunately, wages have not kept up with home-buying costs. The median monthly housing payment for home buyers in 2023 jumped by 12.6% from the prior year, hitting a record $2,715. Over the same period, the median household income increased by just 5.2% to an estimated $78,642 — which is also a record high, but fails to offset the jump in housing costs.

The second pain point is mortgage rates. In October, the average 30-year fixed mortgage rate hit 8% for the first time in nearly two decades. While rates have retreated below 7% in recent weeks, it is still painfully expensive to borrow money for a home, when compared to the record-low rate of 2.65% during the pandemic.

Finally, limited housing inventory has kept housing prices artificially high. This shortage is partly due to a decline in new construction — as well as pandemic-driven delays — which means housing supply has failed to keep pace with U.S. population growth and demand.

The Census Bureau’s latest Housing Vacancies and Homeownership Survey revealed that the homeownership rate among Americans under the age of 35 was just 38.3% in the third quarter of 2023, compared to the baby boomer rate of 79.2%. It is those younger Americans — the ones struggling to get a foothold on the housing ladder — who may be most focused on politicians’ housing policies in the 2024 election.

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White House response

Housing affordability is becoming a problem for Washington — to the extent that one of Biden’s top economic advisors, Lael Brainard, director of the U.S. National Economic Council, recently lauded the administration’s efforts to help people afford homes in a speech at the National Housing Conference.

Brainard described “lowering costs and increasing access to housing for Americans” as “one of the most important issues in the President’s economic agenda.”

President Biden supported two key bills in 2023 that would help to ease the housing affordability crisis:

• The Affordable Housing Credit Improvement Act, which would set rents at less than 24% of the median income in the local area — increasing the number of households with access to affordable rents by 1.2 million over the next decade.

• The Neighborhood Homes Investment Act, laid out in his 2023 Budget, which would promote homeownership for an additional 500,000 households while increasing neighborhood revitalization investments.

The administration also launched a Housing Supply Action Plan in July to address land-use and zoning barriers that limit affordable housing development.

“Our first major priority is increasing the supply of affordably priced homes in order to lower housing costs,” said Brainard. “We are using every lever at our disposal — legislative proposals, our administrative authorities, our convening power, and our bully pulpit — to do so.

“We must do more — at all levels of government and with partners across the housing landscape — to lower housing costs and ensure all Americans have access to affordable and quality housing. Congress should act.”

Multiple administrations, including the current administration, and both parties in Congress have failed to effectively address housing supply, which has been a problem in the U.S. for over a decade. But that is beginning to change — and it’s critically important that it does.

Without access to affordable housing, Americans may struggle to achieve other life goals, like securing a good job, providing for children, building emergency savings and a healthy nest egg for retirement. For many, the stakes could not be higher.