Home prices are a key reason some voters are frustrated with the U.S. economy

Lori Shelton can’t imagine ever having the money to buy a home — which is a major reason why so many voters are frustrated with the economy ahead of this year’s presidential election.

Shelton, 67, drives Uber to help pay rent in Aurora, Colorado. Her salary advance went toward the security deposit on her apartment. But it also slashed her next paycheck, leaving her bank account dangerously low when rent came due — a cycle that never seemed to end.

“I’m always one step behind,” Shelton said, her voice choked up. “It was a nightmare and it’s a terrible nightmare right now.”

The United States is struggling with a housing affordability crisis that has been decades in the making. The root of the problem: America’s failure to build enough housing for its growing population. The housing shortage cuts to the heart of America’s dream of homeownership — undermining President Joe Biden’s assurances that the U.S. economy is strong and underscoring the long-term challenges faced by former President Donald Trump, a Republican and presumptive 2024 nominee. The housing shortage has been largely ignored. .

A Harvard analysis shows the housing shortage is causing renters to put too much of their income into housing. Not enough homes are being sold or built, causing prices to rise. Average mortgage rates have more than doubled, worsening affordability.

In fact, the Census Bureau reported that homeownership rates fell slightly late last year amid an otherwise solid economy. Without housing costs, inflation – Biden’s most obvious economic concern – would remain healthy and stable at 1.8%. Instead, it hovered around 3.2%.

Government officials believe housing inflation will cool soon, but to advocates and economists, a few years of damage is apparent.

“I’ve been working in housing for 30 years, and the housing affordability challenge is the toughest I’ve faced in my career,” said Shaw, a former Housing and Urban Development secretary under Obama who now leads the nonprofit. Shaun Donovan said. Enterprise Community Partners.

Donovan noted that this is an increasingly bipartisan challenge that can unite political parties. Expensive housing was once the domain of Democratic areas like New York City and San Francisco. Now it’s shifted to Republican states as places like Boise, Idaho, grapple with higher prices.

“This is a top issue almost everywhere,” he said. “This is changing the national politics around it in a way that I think is completely different than anything I’ve ever seen.”

Mark Zandi, chief economist at Moody’s Analytics, said the outcome of the November election may ultimately depend on the direction of 30-year mortgage rates.

The current average interest rate is approximately 6.74%. If their support drops closer to 6%, Biden’s chances of victory increase. But Zandi said rates closer to 8% could give Trump a win.

“Given the current housing affordability crisis, higher interest rates will put home ownership completely out of reach for almost all potential first-time buyers,” he said. “Since homeownership is such a big part of the American dream, if it seems out of reach Being out of reach will profoundly affect how voters view the economy.”

Biden, a Democrat, acknowledged the pain felt by many in his State of the Union address earlier this month and in his budget proposal released Monday.

The president wants to fund the construction and maintenance of 2 million homes – significant funding, but not enough to address the housing shortage. He also proposed providing tax credits of up to $10,000 to homebuyers. In three years, he has increased rental assistance for 100,000 households.

“The bottom line is we have to build, build, build,” Biden said in a speech at the National League of Cities on Monday. “That’s how we permanently lower housing costs.”

Rapidly rising home prices are also a worsening problem under Trump, who first achieved celebrity status as a real estate developer. During his presidency, Trump called for curbs on suburban construction. He claimed during the 2020 election that Biden’s policies to spur construction and affordability would “destroy your communities.”

The country’s housing shortage surged 52% between 2018 and 2020, when Trump was president, to 3.8 million units, according to mortgage company Freddie Mac.

The Associated Press reached out to the Trump campaign about its policy plans but did not receive a response. The America First Policy Institute, a think tank that promotes Trump’s vision, said the key is to cut government borrowing to lower mortgage rates. The former president has pledged to reduce the deficit, but analysis by the Committee for a Responsible Federal Budget shows that his policies in office could increase the national debt by more than $8 trillion.

“The best way we can improve young people’s chances of owning a home is to lower interest rates, not provide subsidies that worsen housing affordability,” said Mike Faulkind, the institute’s chief economist.

Lower rates may be popular with voters, but most economists say they will only provide temporary financial relief at best. Purchase prices may adjust upward to account for greater demand due to falling interest rates.

The construction industry is a more permanent solution that will take years to implement and require new rules by states and cities. The administration is trying to incentivize zoning changes, but the main options are outside the control of the White House.

“Even if incomes are up, the economy is doing well, and inflation is down, people can’t afford homes,” said Daryl Fairweather, chief economist at brokerage Redfin. “That’s the biggest thing for Biden. problem because it’s not a problem he can solve.”

A general rule of thumb is that people should pay no more than 30% of their income on rent or mortgage payments. Redfin says a typical home-buying household must spend 41% of its income on mortgage payments.

So there are profound economic risks. High housing costs may lead people to cut back on spending in other areas. Supporters say this allows landlords to neglect their properties because there is always a ready tenant.

Denver attorney Zach Neumann said expulsions can worsen health and educational outcomes for children and impose broader costs on society. He provides more than $30 million in rental assistance annually through the nonprofit Community Economic Defense Project.

Neumann said the cumulative cost of evicting poorer tenants “is $20,000 to $30,000 a year, including shelter nights and emergency room visits.” “It’s really overwhelming when you think about the total numbers and these are people who are fighting to have a roof over their heads.”

Despite bipartisan agreement on the need for more housing, the House and Senate have yet to pass a major package. Biden proposed housing aid plans throughout his administration but never materialized.

“If Congress had passed some of the investments the president has called for since he took office, if they had done it three years ago, as he advocated, we would have affordable housing right now,” said Daniel Hornung Go online.” Deputy Director of the White House National Economic Council.

But Mark Calabria, who served as director of the Federal Housing Finance Agency during the Trump administration, said many federal tools to increase housing, such as low-income housing tax credits, could further drive up demand without increasing enough construction.

“My concern is that when supply issues arise, we do something that increases demand,” said Calabria, now an adviser to the libertarian Cato Institute.

But for renters like Lori Shelton of Colorado, when she now owes back rent, the debate over how to increase the housing supply offers little comfort. She has dealt with the threat of eviction and late fees before. She gets some rent from her son, but she also sometimes relies on the church to pay her $2,399 monthly expenses.

“I think most of us don’t have that savings account,” she said. “If you’re spending that much on rent, groceries, your car and bills, you don’t have a lot of backup money.”