WASHINGTON — Lori Shelton can’t imagine she’ll ever have the money to buy a house — and that’s a big reason why so many voters are feeling down about the economy ahead of this year’s presidential election.
Shelton, 67, drives an Uber to help pay rent in Aurora, Colorado. An advance on her wages covered the deposit on her apartment. But it also cut into her next paycheck, leaving her bank account dangerously low when the rent came due — a cycle that never seems to end.
“I’m always one step behind,” Shelton said in a choked voice. “It’s a nightmare, it’s a terrible nightmare right now.”
The United States is struggling through a housing affordability crisis that has been going on for decades. At the root of this problem is America’s failure to build enough homes for its growing population. The deficit strikes at the heart of the American dream of homeownership — dampening President Joe Biden’s assurances that the U.S. economy is strong and underscoring the extent to which Republican Donald Trump, the former president and presumptive Republican Party nominee for 2024, the deficit has been largely overlooked.
The lack of housing has led to record numbers of renters spending an outsized share of their income on housing, according to a Harvard University analysis. There are not enough homes for sale or under construction, which keeps prices high. The average mortgage interest rate has more than doubled, further deteriorating affordability.
In fact, the Census Bureau reported that homeownership fell slightly late last year in an otherwise solid economy. Without shelter costs, inflation — Biden’s most pronounced economic problem — would be a healthy and stable 1.8%. Instead, it hovers around 3.2%.
Administration officials are confident shelter inflation will cool quickly, but the damage over several years is clear to advocates and economists.
“I’ve been doing housing work for 30 years – the housing affordability challenge is the worst I’ve ever seen in my career,” said Shaun Donovan, former Secretary of Housing and Urban Development in the Obama years, who now leads the nonprofit organization. Enterprise Community Partners.
Donovan noted that this is an increasingly bipartisan challenge that could bring the political parties together. Expensive housing was once the domain of Democratic areas such as New York City and San Francisco. It has now moved to Republican states as places like Boise, Idaho, struggle with higher prices.
“It’s a frontline problem almost everywhere,” he said. “And that changes the national politics around it in a way that I think is very different than anything I’ve ever seen.”
Mark Zandi, chief economist at Moody’s Analytics, said the outcome of the November election could ultimately depend on the path of 30-year mortgage rates.
Rates currently average approximately 6.74%. If they fell closer to 6%, the chances of a Biden victory would increase. But if rates approach 8%, Trump could emerge victorious, Zandi said.
“Given the current housing affordability crisis, higher rates will make home ownership completely out of reach for almost all potential first-time homebuyers,” he said. “Since homeownership is an important part of the American dream, if it seems unachievable it will have a major impact on how voters feel about the economy.”
Biden, a Democrat, acknowledged the pain many are feeling 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 preservation of 2 million homes — a significant amount, but not enough to solve the shortage. He also proposed a tax credit worth up to $10,000 for homebuyers.
“The bottom line is we have to build, build, build,” Biden said Monday in a speech to the National League of Cities. “In this way we can reduce housing costs for good.”
Rapidly rising home prices have also been a festering problem under Trump, who first achieved celebrity status as a real estate developer. While president, Trump called for limits on construction in the suburbs. He claimed during the 2020 election that Biden’s policies to boost construction and affordability would “destroy your neighborhood.”
According to mortgage company Freddie Mac, the housing shortage in the country increased by 52% between 2018 and 2020 to 3.8 million homes.
The Associated Press contacted Trump’s campaign for its policy plans but received no response. The America First Policy Institute, a think tank promoting Trump’s vision, said the key is to cut government borrowing to lower mortgage rates.
“The best way for us to improve access to homeownership for young people is by lowering interest rates again, not by providing subsidies that make housing unaffordable,” said Mike Faulkender, chief economist at the institute.
Lower interest rates might appeal to voters, but most economists say they would provide temporary financial relief at best. Purchase prices would likely adjust upward in response to increased demand from falling interest rates.
Construction, the more sustainable solution, would take years and require new regulations from states and cities. The administration is trying to encourage zoning changes, but the key choices are beyond the White House’s control.
“Even with incomes rising, the economy doing well and inflation falling, people can’t buy homes,” said Daryl Fairweather, chief economist at real estate brokerage Redfin. “That’s about the biggest problem for Biden, because he can’t solve it.”
The general rule of thumb is that people should not pay more than 30% of their income on rent or mortgage. A typical household looking to purchase a home would need to spend 41% of its income on mortgage payments, according to Redfin.
This poses far-reaching economic risks. High housing costs can lead people to cut back elsewhere. Proponents say it allows landlords to neglect their properties because there is always a tenant ready.
Evictions can worsen health and educational outcomes for children and impose even greater costs on society, said Zach Neumann, a Denver attorney who provides more than $30 million annually in housing assistance through the nonprofit Community Economic Defense Project.
The cumulative cost of evicting poorer tenants is “$20,000 to $30,000 a year if you include shelter nights and emergency room visits,” Neumann said. heads.”
While there is bipartisan agreement on the need for more housing, a major plan has yet to pass the House and Senate. Biden has proposed housing aid throughout his administration, which never materialized.
“If Congress had approved some of the investments that the president has been asking for since the beginning of the administration, if they had done that three years ago as he advocated, affordable units would be coming online now,” said Daniel Hornung . deputy director of the White House National Economic Council.
But Mark Calabria, director of the Federal Housing Finance Agency during the Trump administration, said many of the federal tools to increase housing construction, such as the Low-Income Housing Tax Credit, could further drive up demand without allowing enough new construction add.
“My concern would be that we have done some things that have increased demand, while the problem is supply,” said Calabria, now a consultant at the libertarian Cato Institute.
But for renters like Lori Shelton in Colorado, the debate over how to increase housing supply is cold comfort when she now owes rent. She has faced the threat of eviction and late fees before. She gets some rent money from her son, but she also sometimes depends on her church to pay the $2,399 a month.
“I don’t think most of us have that kind of savings account,” she said. “When you spend so much on your rent and your groceries and your car and your bills, you don’t have much to fall back on.”