Is The Housing Affordability Crisis an Illusion?

The debate over housing affordability in the United States has reached a fever pitch in recent months, with average home prices hovering near all-time highs. This has led to growing concern among the public, prompting politicians, including the Trump administration, to explore potential solutions. President Trump has hinted at the possibility of declaring a national housing emergency to address the issue, although the specifics of such a declaration remain unclear.

As an economist with a background in residential construction, I have been closely following the discussion surrounding housing affordability. While many experts attribute the rising cost of homes to regulatory constraints such as zoning laws, permitting processes, and energy-efficiency standards, I believe that a more comprehensive analysis is needed to fully understand the situation.

When evaluating long-term trends in home prices, it is essential to consider factors such as inflation, changes in household income, home size, and household composition. By adjusting for these variables, a more nuanced picture of housing affordability emerges. For example, while nominal home prices have increased significantly since 1960, adjusting for inflation reveals a more modest rise in real terms.

Moreover, when accounting for changes in household size and income, as well as improvements in home quality and amenities over the years, the actual affordability of housing may not have increased as dramatically as perceived. In fact, when factoring in these adjustments, housing affordability may have only increased by a marginal 6% from 1960 to 2024, and may even have declined from its peak in the late 1970s.

However, it is important to note that this analysis is based on national aggregate data and may not capture regional variations in home price changes. In some areas, such as coastal and sunbelt metros, home prices have skyrocketed, making it increasingly difficult for younger generations to afford homes. Conversely, in regions like the Midwest, housing remains relatively more affordable.

To address the escalating cost of housing, it is crucial to focus on increasing the supply of homes by easing regulatory constraints, streamlining permitting processes, and promoting the construction of more affordable housing units. By allowing the housing supply curve to shift to the right, greater equilibrium can be achieved between supply and demand, ultimately making homeownership more accessible for all Americans.

In conclusion, while the housing affordability crisis is a complex issue that requires careful consideration, there are actionable steps that can be taken to mitigate its impact. By implementing smart public policy responses and fostering a more competitive housing market, we can work towards ensuring that all individuals have access to affordable and quality housing options.

Tyler Watts is a professor of economics at Ferris State University.