Owning a home is out of reach for many Americans.
About the author: Chuck Fowke is chairman of the National Association of Home Builders.
Housing affordability is the key issue facing the home-building industry right now. More than half of all U.S. households—or 63 million—are unable to afford a $250,000 home. And 10.7 million American households pay more than 50% of their income on rent. Moreover, home prices are rising too quickly due to strong demand, lean inventories, and the fact that the U.S. housing market is more than 1 million single-family homes short of what is needed to meet the country’s demand.
Adding fuel to the fire is the rapid price increase in softwood lumber products that occurred during the past 15 months. While framing lumber costs have come down in recent weeks, the price of softwood plywood has increased by more than 200% since April 2020 and the price of oriented strand board has skyrocketed by nearly 500%. The bottom line is that OSB-led changes in softwood lumber prices that occurred between April 2020 and July 2021 have added nearly $30,000 to the price of an average new single-family home and raised the rental price of a new apartment by more than $90.
Rising home prices, apartment rents, and construction costs represent real risks to housing affordability for prospective buyers and renters. With the nation in a housing affordability crisis, home builders are having trouble constructing more affordable homes. because they are grappling with:
- Excessive regulations at the local, state and federal levels of government that account for nearly 25% of the cost of a single-family home and more than 30% of the cost of a typical apartment development;
- An acute shortage of construction workers—due in part to tighter restrictions on immigrant workers—that is raising construction costs and home prices;
- A limited supply of buildable lots;
- Rising material costs, which are exacerbated by tariffs on Canadian lumber shipments into the U.S. that are raising housing costs; and
- Difficulty in getting acquisition, development, and construction loans.
The only way to solve the nation’s affordability crisis is to build more homes. Access to safe, decent, and affordable housing is a fundamental need. And homeownership offers the most important investment that most American families will make. Lawmakers should recognize the importance of housing—one of the key industries delivering jobs and economic growth during the Covid-19 pandemic.
To help builders expand housing production, Congress and the Biden administration must put policies in place that foster support for housing and homeownership. Fixing the building-materials supply chain is key to constructing more housing and reducing the housing deficit. Regarding the current lumber crisis, the U.S. must immediately engage with Canada to adopt a new softwood lumber agreement and stop the imposition of harmful tariffs on Canadian lumber.
At the urging of the National Association of Home Builders, the White House recently held a summit on building materials with a diverse group of industry stakeholders, two Cabinet officials and President Biden’s top economic advisers. This was an important step forward as all the participants recognized the need to resolve supply-chain bottlenecks and the issue of rising material prices and supply shortages.
On the multifamily front, we must continue to improve the Low-Income Housing Tax Credit, which is the most effective affordable rental housing program in history. Congress needs to enact H.R. 2573, the Affordable Housing Credit Improvement Act. The bill would finance more than 2 million additional multifamily units over the next decade by increasing the amount of credits allocated to each state and expanding the number of affordable housing projects that can be built using private activity bonds.
Regarding housing tax incentives, recent tax changes have undermined the effectiveness of the mortgage interest deduction, resulting in fewer middle-class taxpayers itemizing and incentives flowing more to high-income households. A shift away from the mortgage interest deduction to a permanent homeownership tax credit that is targeted to lower- and middle-income Americans would make homeownership more accessible to hardworking American families. Additionally, a permanent, first-time home buyer tax credit would complement this shift and could provide some relief to the challenge of accumulating a down payment.
To help bring more workers back into the industry, Congress should promote job-training programs to prepare individuals for careers in home building and create a year-round, market-based guest worker program that allows the construction sector to access skilled, temporary foreign labor.
To maintain a robust housing market, lawmakers must enact meaningful housing finance reform that maintains an appropriate level of federal support to ensure sufficient mortgage liquidity for homeownership and rental housing opportunities. This will protect the 30-year fixed-rate mortgage, which has enabled millions of Americans to build wealth and financial security through homeownership.
At the state and local levels, officials must roll back costly impact fees, inefficient zoning rules, permitting roadblocks, and density and growth restrictions that are curbing land supply and driving up housing costs. To further encourage the production of affordable housing, local governments need to streamline and advance development approvals; allow a range of housing types, including multifamily; expedite approvals for affordable projects; and encourage public-private partnerships, including with nonprofits.
These policy initiatives, along with the reduction of damaging regulatory burdens at all levels of government, will expand housing supply and improve housing affordability for all Americans.
Guest commentaries like this one are written by authors outside the Barron’s and MarketWatch newsroom. They reflect the perspective and opinions of the authors. Submit commentary proposals and other feedback to email@example.com.