This Thursday, both Democrats and Republicans on the Senate Banking Committee brought attention to the impact of low housing supply on pricing.
Housing inventory constraints have always plagued American would-be homeowners, but they have recently been exacerbated by labor shortages and supply chain inefficiencies caused by global lockout regulations. Senate Banking Committee members debated the topic at their first meeting of the new Congress.
Sen. Sherrod Brown (D-OH) remarked in his opening remarks, “There just isn’t enough decent housing at prices that families can afford.” And because there aren’t enough houses, renters and homeowners alike have to pay more each month or put up with safety hazards like peeling lead paint and leaking roofs.
According to data from government-backed mortgage corporation Fannie Mae, the housing market experienced a deficit of 3.8 million dwellings in 2019. According to the National Association of Realtors, between 5.5 million and 6.8 million additional homes would have been needed to meet current demand during the previous two decades.
Sen. Tim Scott (R-SC) said that the Biden administration’s inactivity on the supply chain problems and other measures contributed to the shortage of available homes.
In his introductory remarks, he argued that “it is past time to reconsider the tax-and-spend policies that keep families imprisoned in generational cycles of poverty” and instead develop “genuine solutions” that would have a “significant impact” on all households. Instead of pouring more money into ineffective programs, the government should begin responsibly aiding families. We need to take use of the advantages of American capitalism by removing restrictions that prevent the free flow of money and increasing the supply of homes.
Meanwhile, senior Biden administration officials have asked Fannie Mae and Freddie Mac to support housing projects near public transportation and provide affordable financing for multifamily construction. This would make it easier to build “mixed-income housing” and “housing that includes very low-income tenants.” Bureau of Labor Statistics data shows that from November 2021 and December 2022, housing inflation averaged 7.5%, far higher than the 1.8% annualized rate recorded in the month before President Joe Biden’s inauguration.
The median sale price of a home increased from 322,600 dollars in the second quarter of 2020 to 467,700 dollars in the fourth quarter of 2022, as reported by the Department of Housing and Urban Development. Mortgage rates spiked in response to the Federal Reserve’s efforts to curb inflation, leading to a cost plateau in the second half of last year.
The decrease in home prices has coincided with a halt in homebuying activity but does not indicate that homes are now more affordable. Redfin, a real estate brokerage, conducted an analysis showing that between the end of 2021 and the end of 2022, mortgage payments for the typical home increased by more than 45 percent, indicating that the salary required to afford such a property increased from nearly $74,000 to more than $107,000.
According to Christopher Herbert, director of the Harvard Joint Center for Housing Studies, who testified before the Senate Banking Committee, the number of properties for sale has “stayed at record lows” despite the market slowdown. He made the interesting observation that purchasers who secured advantageous mortgage terms before the recent surge in borrowing costs are not likely to sell.