April 17th 2024.
During a Senate Banking Committee hearing in March, Federal Reserve Chair Jerome Powell expressed his concern about America's housing shortage. He explained to lawmakers that this issue is likely to persist due to a variety of factors that are affecting the construction of new properties.
As Fast Company reported, Powell was asked by Georgia Senator Raphael Warnock about his thoughts on the rising housing prices. Powell responded by highlighting the challenges of inflation and the ongoing pandemic, which have contributed to a sluggish housing market. He stated, "The housing market is facing a difficult situation right now. We have a long-standing shortage of homes, but we also have the added effects of the pandemic and inflation, as well as our response with higher interest rates." He further explained that the limited availability of homes for sale, coupled with a low transaction rate, has caused a surge in prices for both existing and new homes.
This has resulted in a standoff, as described by Nicole Friedman, a housing reporter for the Wall Street Journal, in a March episode of Vox's Today Explained podcast. She pointed out how the baby boomer generation is aging in place, unlike previous generations, which has contributed to the shortage of available homes. "Every boomer will tell you that they bought their homes for a fraction of the current prices, but they also had to deal with high mortgage rates," Friedman stated.
She also agreed with Powell's point about the lack of housing and provided context as to why this is the case. "It's a consensus that there are simply not enough homes available. After the financial crisis, many homebuilders went out of business, and the ones that remained were financially scarred. This made them more cautious, resulting in a significant decrease in home construction. It has taken over a decade for the industry to recover," she explained.
The housing shortage, specifically the lack of homes, has also become a prominent issue in the upcoming election in November. As reported by Vox in May 2023, the Biden administration announced its Housing Supply Action Plan, which aims to address this issue. However, nearly a year later, there has been minimal progress, and the rising interest rates have further slowed down the construction of homes. Despite investing in infrastructure and climate change, the federal government has not made significant efforts to expand the housing supply. According to Andy Winkler, the housing director at the Bipartisan Policy Center, the zoning issues raised in the Housing Supply Action Plan were a positive first step.
The Bipartisan Policy Center has outlined a series of initiatives that they believe the federal government should pursue to make notable progress in resolving the housing crisis. As Vox reported, advocates for change in the housing system believe that significant efforts from the government are necessary. The Bipartisan Policy Center's conclusion states, "We believe that both political parties should work together, building on the Biden Administration's 'House America' initiative, to prevent and end homelessness nationwide, a bipartisan objective. This plan addresses housing supply constraints, provides assistance to families and veterans, prevents evictions, and more. However, it is likely that additional resources and policy changes will be needed to make homelessness a rare, brief, and one-time occurrence in the United States."
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