Housing, it’s everywhere in the news: the lack of it, the demand for it, and the high price Americans are paying to get it. And it’s no wonder; the median price of a home has increased by 88% since 2008, with prices rising by 24% in just the last five years. Even in traditionally affordable housing markets, supply is tight, fueling further price increases.
Without affordable housing, cities and regions are unable to attract the workers and business investment they need to boost their economies. Research from the U.S. Chamber of Commerce finds that statewide housing shortages in states like Missouri, Wisconsin, Tennessee, and Indiana have caused $5-10 billion in GDP loss per state between 2008 and 2025. Even local shortages have a national impact: research analyzing data from 1964 to 2009 found that the lack of affordable housing in just three job markets – New York City, San Francisco and San Jose, CA – decreased US GDP by 3.7%, or approximately $535 billion.
What is going on here? The honest answer is: it’s complicated. Reporting from the New York Times indicates that the construction industry was permanently scarred by the 2008 housing crash, with new unit construction slowing from about 1-2 million per year between 2003 and 2007 to only 490,000 in 2009. Further, experts say that this limited growth in supply, combined with an increasing number of millennial homebuyers, exacerbated the 2020 recession. Inflation in material prices, worker shortages, a slowdown in construction, and high demand for housing all further contributed to increasing costs.
In light of these challenges, the State Economic Development Executives Network (SEDE) hosted a webinar titled “Strategies to Bridge Housing Gaps and Fuel Economic Development”, with guest speakers Maurice Harris from Transwestern Commercial Real Estate and Eric Lynch from the National Association of Home Builders (NAHB).
Lynch kicked off the webinar by addressing the issue of inflation and the consequent effect on mortgages, highlighting how inflation and interest rates have added new hurdles to housing affordability. The pandemic’s supply chain snarls fueled inflation, and the Federal Reserve responded with higher rates. “That difference in nominal dollar values is $805 a month,” Lynch explained, referring to the jump in mortgage payments as rates climbed. “So, if you think about that as a consumer… I don’t have an extra $805 a month to be able to spend on a mortgage. So, you can see why you get what is known as the lock-in effect for existing consumers.”
Furthermore, homeowners who are locked into lower rates are reluctant to sell, further choking inventory. Lynch projected that mortgage rates will remain above 6% until at least 2027, and even as inflation slows, he warned, “the price level… is on average about 25% more [than in January 2020]. So, consumers have been… dealing with these price levels for quite a while, which is eating into their savings, which means their purchasing power isn’t necessarily as great as it used to be.”
While Lynch’s comments reinforced the constrained market, Harris discussed how states might address it. Harris called for collaboration, saying, “you need to bring multiple people together, different politicians, local, state, federal, everything to try and figure out how to tackle this problem locally because it’s not going away.” According to Harris, solving the housing crisis will take more than one agency or level of government — the solution requires coordinated, multi-sector action.
Harris stressed the need for increased federal funding and incentives, particularly for first-time homebuyers and affordable housing developments. “There’s a real need for federal funding and incentives to help get more affordable housing built,” he explained. With so many would-be buyers now stuck in the rental market, rents are climbing too, further squeezing household budgets. He noted that prices are pushing typical first-time homebuyers into the rental market, fueling rent hikes.
And the causes don’t stop there. Seniors are staying in their homes longer – reducing housing turnover and making it harder for young families to enter the market.
Even when new developments do happen, it’s often not the kind of housing that communities most need. “It’s not just about building more homes, it’s about building the right types of homes in the right places,” Harris said. Developers, responding to market pressures, are more likely to build high-density rental apartments. “It is more feasible for developers to build an apartment because there’s more units. And so, the return on investment is significantly better.”
To move forward, Harris urged creative thinking: “We have to look at creative solutions, things like adaptive reuse of existing buildings, zoning changes, and public-private partnerships.” Strategies like repurposing underused office space, streamlining permitting processes, and relaxing restrictive zoning could unlock new opportunities in paralyzed housing markets.
As the housing crisis continues to ripple through the economy and into the lives of everyday Americans. Lynch underscored the urgency of the situation: “We’re seeing more and more people being cost-burdened, spending more than 30% of their income on housing, and that’s just not sustainable.”
Solving the housing crisis won’t be quick or easy. But with coordinated action, innovative thinking, and a willingness to work across sectors, real progress is possible.