Title: Biden Administration Takes Action to Address Housing Affordability Crisis
Introduction:
The Biden administration has announced a series of measures aimed at reducing soaring home prices and tackling the ongoing housing supply shortage. Treasury Secretary Janet Yellen unveiled these efforts in Minnesota, emphasizing the need for a comprehensive affordability agenda to address the record prices and supply crunch.
The Housing Affordability Crisis:
The median home price reached an all-time high of $419,300 last month, driven by a combination of supply tightness and strong demand. This 38 percent increase since January 2021 highlights a significant housing supply shortfall that has been building for years, resulting in an affordability crunch.
Bolstering Supply and Lowering Costs:
To address the housing shortage, the Biden administration has introduced several initiatives. These include a $100 million fund over three years to finance affordable housing projects and urging federal, state, and local agencies to support new housing development. The administration has also called upon the 11 Federal Home Loan Banks (FHLBs) to increase their spending on housing programs.
Additionally, the White House has released an “Affordable Housing How-To Guide” to assist state and local governments in utilizing recovery funds from the Treasury Department to build housing. These measures aim to enhance supply and lower costs, contributing to a more affordable housing market.
Shelter Inflation and Moderation:
While the consumer price index (CPI) eased in May, the shelter component remains high, with a 0.4 percent increase in shelter inflation last month. Since January 2021, shelter inflation has surged over 21 percent. Rents have risen by 21 percent, and median home prices have skyrocketed by 38 percent in the last three years.
However, a senior administration official believes that shelter inflation will moderate. Despite the challenges, positive signs such as a 50-year high in total units under construction provide hope for addressing the housing supply shortfall.
The Biden Administration’s Comprehensive Plan:
Treasury Secretary Yellen and other White House officials have been actively addressing housing-related issues. Lael Brainard, director of the National Economic Council, highlighted the president’s multiple public policy tools to enhance supply. These include a proposed $10,000 tax credit to incentivize current homeowners to sell their starter homes and a tax credit supporting new housing construction projected to build 200,000 additional affordable units.
However, the broader Tax Relief for American Families and Workers Act of 2024 bill, which includes the proposed tax credit, has faced delays in Congress. Despite this setback, the Biden administration remains committed to lowering housing costs for families.
Housing Construction Challenges:
New housing construction activity has seen a decline since early 2022. In May, housing starts dropped by 5.5 percent, reaching the lowest level since July 2020. Single-family housing starts declined by 5.2 percent to a seven-month low, while starts for units in buildings with five or more units plummeted by 10.3 percent to a two-month low. These figures highlight the urgent need to address housing construction challenges.
Affordability Challenges and Demographic Impact:
A recent study by the Treasury Department reveals that home and rent prices have been rising faster than incomes across the country for the past two decades. Housing demand has consistently outpaced supply for the last 24 years, leading to affordability issues, particularly for households of color and low-income communities.
According to Zillow, middle-income households need to put down 35.4 percent (or $127,750) as a down payment to afford the monthly mortgage payment for a typical U.S. residential property. Affordability challenges are further exacerbated by increasing mortgage rates. Buyers may face longer wait times for the right home to hit the market due to limited availability and reduced affordability.
Conclusion:
The Biden administration’s comprehensive approach to address the housing affordability crisis includes measures to bolster supply, lower costs, and support affordable housing projects. By urging agencies and banks to invest more in housing programs and providing guidance to state and local governments, the administration aims to alleviate the housing supply shortfall. Despite challenges in Congress and declining housing construction activity, these initiatives offer hope for a more affordable housing market and improved access to homeownership.
