American Dream Delayed: Why Home Prices Could Be a Problem for Biden

Cameron Ambrosy spent the first weekend of December attending ten open houses – purely for research purposes. The 25-year-old from St. Paul, Minnesota, has a well-paying job and she and her husband are diligently saving, but she knows it will be years before they can afford to buy anything.

“It’s much more of a long-term goal than it is for my parents or grandparents, or even my peers who are a little older,” Ms. Ambrosy says, adding that for many of her friends, homeownership is even further away. “There’s a lot of nihilism around long-term goals like buying a house.”

As many people pay more for rent and some struggle to save for starter homes, political and economic analysts warn that housing affordability could contribute to economic unhappiness — and will likely be a more salient issue in the 2024 presidential election than in In recent years. .

Many Americans have a negative view of the economy, even though unemployment is low and wage growth is strong. Younger voters cite housing as a particular concern: Among respondents ages 18 to 34 in a recent Morning Consult survey, housing came in second behind overall inflation.

Wary of the issue and its political implications, President Biden has directed his economic aides to come up with new and expanded efforts for the federal government to help Americans struggling with the costs of buying or renting a home, they say assistants. For example, the government is using federal grants to encourage local governments to relax zoning rules and is considering executive actions that focus on affordability. The White House also sent top officials, including Lael Brainard, who heads the National Economic Council, to give speeches about the government’s efforts to help people afford housing.

“The president is very focused on housing affordability because it is the most important monthly expense for so many families,” Ms. Brainard said in an interview.

Housing has not traditionally been a major factor motivating voters, in part because important market factors such as zoning policies tend to be local. But some political strategists and economists say the rapid rise in prices since the pandemic could change that.

Rents have risen about 22 percent since the end of 2019, and a main index of house prices has risen by an even heavier 46 percent. Mortgages are now hovering around 7 percent as the Federal Reserve has raised interest rates to a 22-year high in an effort to control inflation. These factors have ensured that both the monthly rent and the dream of owning their first home have become increasingly unattainable for many young families.

“This is the unique economic issue of our time, and they need to figure out how to talk to voters about it in a way that resonates,” said Tara Raghuveer, executive director of KC Tenants, a tenants union in Kansas City, Missouri. referring to the White House.

The decline in housing affordability comes at a time when many consumers are facing higher prices overall. A period of rapid inflation that began in 2021 has seen households pay more for daily necessities such as milk, bread, gas and many services. While costs have stopped rising as quickly, those higher prices continue to weigh on consumer confidence, eroding Mr. Biden’s approval ratings.

Although incomes have kept pace with price increases recently, that period of inflation has caused many young households to devote a greater share of their money to the economy. budgets in rental costs. That makes it harder for many to save for now higher down payments. The situation has led to a wave of viral content on social media about the difficulty of buying a home, which has long been a stepping stone to the middle class and an important part of wealth building in the United States.

That’s why some analysts think housing issues could evolve into a major political issue, especially for hard-hit demographics like young people. While about two-thirds of American adults overall are homeowners, that share is falling to less than 40 percent for people under 35 years old.

“The housing market has been incredibly volatile over the past four years, in a way that has made it very noticeable,” said Igor Popov, chief economist at Apartment List. “I think housing will be an important issue in the 2024 elections.”

Still, there are reasons why presidential candidates have rarely emphasized housing as an election issue: It is both a long-term problem and a difficult one that the White House can tackle on its own.

“Housing is kind of a problem child in economic policy,” said Jim Parrott, a nonresident fellow at the Urban Institute and a former economic and housing adviser to the Obama administration.

America is facing a housing supply shortage that has been going on for years. Builders returned to building activity after the housing market crisis in 2007, and years of insufficient construction have left too few homes on the market to meet recent strong demand. The shortage has recently been exacerbated as higher interest rates have discouraged homeowners locked into low mortgage rates from moving.

Conditions could ease slightly in 2024. The Federal Reserve is expected to start cutting borrowing costs next year as inflation subsides, which could help make mortgages slightly cheaper. A new supply of apartments is expected to be delivered, which could keep rental prices under pressure.

And even voters who feel bad about housing may still support Democrats for other reasons. Ms. Ambrosy, the potential buyer in St. Paul, said she voted for President Biden in 2020 and planned to vote for the Democratic candidate in this election based purely on social issues, for example.

But housing affordability is such a sore point for young voters and renters — who tend to lean heavily Democratic — that it has confused the Biden administration’s ability to emphasize possible solutions.

After including emergency rental assistance in his 2021 economic stimulus bill, Biden has paid less attention to housing than other inflation-related issues, such as lowering prescription drug costs. Are most aggressive housing proposalssuch as an expansion of federal housing vouchers, were removed from last year’s Inflation Reduction Act.

Still, his government has made several attempts to liberalize local housing laws and expand affordable housing. It brought a “Housing supply promotion” plan that aims to accelerate the pace of development by using federal grants and other funds to encourage state and local governments to liberalize their zoning and land use rules to make housing construction faster and easier. The plan also gives governments more leeway to use transportation and infrastructure funds to produce housing more directly (such as with a new program that conversion of offices into apartments).

The administration has also suggested a number of ideas to help tenants, such as: blueprint for future tenant legislation and a new Federal Trade Commission proposal to “junk costs” for things like roommates, applications and utilities that hide the true rental costs.

Some affordable housing advocates say the government could do more. One possibility they have floated in the past is for Fannie Mae and Freddie Mac, which help create a more robust market for mortgages by buying them from financial institutions, to invest directly in moderately priced rental properties. Ms. Raghuveer, the tenant organizer, has argued that the Federal Housing Finance Agency, which oversees Fannie Mae and Freddie Mac, could unilaterally impose a cap on annual rent increases for landlords whose mortgages supported by the agencies.

But several experts said the White House efforts would only help at the margins. “Without Congress, the government is really limited in what it can do to break down supply barriers,” said Emily Hamilton, an economist at the Mercatus Center who studies housing.

Republicans control the House of Representatives and have opposed almost all of Biden’s plans to increase government spending, including on housing. But aides say Mr. Biden will press the case and seek new executive action to help with housing costs.

While it can be valuable to talk about solutions, “nothing is going to solve the problem in a year,” said Mark Zandi, chief economist at Moody’s Analytics and a frequent adviser to Democrats.

“This problem has been developing for 15 years, since the financial crisis, and it will take another 15 years to get out of it.”