By JOSH BOAK (Associated Press)
Lori Shelton feels she will never have enough money to buy a house, which is a major reason why many voters are pessimistic about the economy before the presidential election.
Shelton, who is 67, works as an Uber driver to help with rent in Aurora, Colorado. She had to take an advance payment to cover her apartment's security deposit, but it left her with very little money when the rent was due, creating a cycle of financial struggle.
'I'm always lagging behind,' Shelton said, her voice getting emotional. 'It's a nightmare, it's a really tough situation right now.'
The United States is dealing with a crisis of affordable housing that has been developing for decades. housing affordability crisis The core of this issue is that America has not built enough homes for its growing population, which is dampening President Joe Biden's claim that the US economy is strong, and highlighting how Republican Donald Trump, the former president and likely GOP nominee for 2024, has largely ignored the shortage.
A Harvard University analysis reveals that the lack of housing has caused a record number of renters to spend a large portion of their income on housing. The scarcity of homes for sale or being built has kept prices high. Average mortgage rates have more than doubled, further worsening affordability. Harvard University analysis. Not enough homes are for sale or being built, keeping prices elevated. Average mortgage rates have more than doubled and further worsened affordability.
The Census Bureau reported that homeownership declined slightly at the end of last year in an otherwise strong economy. If it wasn't for shelter costs, inflation — Biden's most pronounced economic problem — would be running at a healthy and stable 1.8%. Instead, it's hovering around 3.2%.
Government officials believe that shelter inflation will decrease soon, but the impact over several years is clear to advocates and economists.
'I've been involved in housing work for 30 years — the housing affordability challenge is the most severe I've ever seen in my career,' said Shaun Donovan, a former secretary of Housing and Urban Development in the Obama years who now leads the nonprofit Enterprise Community Partners.
Donovan pointed out that this is an increasingly bipartisan challenge that could bring the political parties together. Expensive housing was once mainly an issue in Democratic areas like New York City and San Francisco, but it has now spread to Republican states such as Boise, Idaho, where prices are rising.
'It is an important issue almost everywhere,' he said. 'And it is changing the national politics surrounding it in a way that is quite different from what I have ever seen.'
Mark Zandi, chief economist at Moody's Analytics, stated that the outcome of the November election could ultimately depend on the path of 30-year mortgage rates.
Rates currently average about 6.74%. If they dropped closer to 6%, the odds of a Biden victory would increase. But rates moving near 8% might enable Trump to prevail, Zandi said.
'With the current housing affordability crisis, higher rates will make owning a home completely unattainable for nearly all potential first-time homebuyers,' he said. 'Since homeownership is a fundamental part of the American dream, if it seems impossible, this will deeply impact voters’ sense of the economy.'
The Democrat president, Biden, recognized the suffering that many people are experiencing in his State of the Union speech earlier this month and in his budget plan released on Monday.
The president aims to finance the construction and preservation of 2 million housing units — a significant amount, but not sufficient to solve the shortage. He also suggested a tax credit valued at up to $10,000 for homebuyers. Over the last three years, he has raised rental assistance for 100,000 households.
Biden stated on Monday in a speech to the National League of Cities, “The main idea is we need to construct, construct, construct. That’s how we reduce housing costs permanently.”
Expeditiously increasing home prices were also a lingering issue during Trump's time, who initially gained fame as a real estate developer. While president, Trump called for restricting construction in the suburbs. He argued during the 2020 election that Biden’s policies to encourage construction and affordability would “ruin your neighborhood.”
During the 2018 to 2020 years of Trump’s presidency, the country’s housing shortage grew 52% to 3.8 million units, according to the mortgage company Freddie Mac.
The Associated Press reached out to Trump’s campaign for his policy plans but did not receive a response. The America First Policy Institute, a think tank supporting Trump’s vision, stated that the key is to reduce government borrowing to lower mortgage rates. The former president has pledged to decrease deficits, but an analysis by the Committee for a Responsible Federal Budget indicates that his policies in office will likely have added more than $8 trillion to the national debt. “The most effective way for us to increase access to homeownership for young people is to decrease interest rates, not to provide subsidies that worsen housing unaffordability,” said Mike Faulkender, chief economist at the institute.
Reduced rates might be popular with voters, but most economists assert that they would at best offer temporary financial relief. Purchase prices would likely adjust upwards due to increased demand from declining rates.
Construction, a more lasting solution, would take years to accomplish and would require new regulations by states and cities. The administration is attempting to encourage zoning changes, but the primary decisions are beyond the White House’s control.
“Even as incomes are rising and the economy is prospering and inflation is decreasing, people can’t buy homes,” noted Daryl Fairweather, chief economist at the brokerage Redfin. “That’s the biggest problem for Biden because it’s not one that he can resolve.” new rules by states and cities. The administration is trying to incentivize zoning changes, but the major choices are outside the White House’s control.
“Even as incomes are going up and the economy is doing well and inflation is coming down, people can’t buy homes,” said Daryl Fairweather, chief economist at the brokerage Redfin. “That’s like the biggest problem for Biden because it’s not one that he can solve.”
The general guideline is that individuals should spend no more than 30% of their income on rent or a mortgage. A typical household looking to buy a home would have to allocate 41% of its income to mortgage payments, according to Redfin.
There are far-reaching economic risks due to this. High housing costs can cause people to reduce spending elsewhere. Advocates stated it allows landlords to neglect their properties since there is always a willing tenant.
Evictions can exacerbate health and educational outcomes for children and impose an even broader cost on society, as stated by Zach Neumann, a lawyer based in Denver who provides over $30 million annually in rental assistance through the nonprofit Community Economic Defense Project.
According to Neumann, the total yearly costs of evicting poorer renters are around $20,000 to $30,000, taking into account shelter nights and emergency room visits. The sheer numbers are overwhelming, and these people are struggling to have a roof over their heads.
Both parties agree on the need for more housing, but there hasn't been a significant plan approved by the House and Senate yet. Biden has suggested housing aid throughout his administration, but it has not been put into action.
Daniel Hornung, deputy director of the White House National Economic Council, expressed that if Congress had approved some of the investments proposed by the president at the beginning of his administration three years ago, affordable housing units would be available now.
Mark Calabria, who led the Federal Housing Finance Agency during the Trump administration, argued that many federal tools to increase housing, such as the Low-Income Housing Tax Credit, could raise demand without enough construction.
Calabria, currently an adviser with the libertarian Cato Institute, expressed concern that increasing demand without addressing the issue of supply may worsen the situation.
For renters like Lori Shelton in Colorado, the discussion on how to increase housing supply is not very comforting as she currently owes rent. She has faced the threat of eviction and late fees in the past. While she receives some rent money from her son and assistance from her church to cover the $2,399 monthly rent, she still faces financial difficulties.
According to Shelton, the majority of people in her situation don't have a savings account. With such high expenses on rent, groceries, car, and bills, there is not much left for emergencies.
