Housing rates for younger generations have fallen since the 2008 financial crash and are lower than they have been in more than 50 years.
A confluence of factors has placed the American dream of home ownership outside the reach of younger borrowers and have added strains across almost all age cohorts.
According to the National Association of Realtors (NAR), “the typical age of first-time buyers climbed to an all-time high of 40 years,” up from when NAR started keeping statistics in 1981, when the median age was just 29 years old.
Unfinished Business
The Trump Administration needs to rectify the great unfinished business of his first term and protect and expand the American dream. Declaring “A National Housing Emergency”—which is under discussion at the highest levels of the administration — will bolster Republicans’ competitive position in the midterm elections, just a year away. This can solidify the Trump administration’s legacy for generations to come. Carefully chosen policies can expand the dream of home ownership for new generations of Americans.
Lowering Interest Rates
The Trump Administration is already moving aggressively to prompt the Federal Reserve to lower interest rates, which will help with mortgages. This may be one of the most critical reforms the administration can take, but it is not enough. The Trump Administration must also bolster the supply of housing.
Boosting Supply
Lowering the interest rate on mortgages helps with long-term affordability and would increase the supply of homeowners willing to move or sell, but a lack of supply is artificially keeping housing costs beyond reach for tens of millions of potential borrowers. Thus, increasing supply is critical in any two-pronged approach to increasing home ownership.
Embracing Home Manufacturing Technology
A major reform that the administration should support is to remove the 50-year-old requirement that manufactured homes be built on a permanent steel chassis. Before 1974, manufactured homes comprised about one-third of new U.S. housing. Today they account for only 10%.
The rule has raised costs, restricted mortgage eligibility, and reinforced the stigma surrounding so-called mobile homes that drives zoning opposition. The fact of the matter is that with modern technology like 3-D printing and other newer precision manufacturing technologies, manufactured homes can be constructed more cheaply and with often higher energy efficiency and construction standards than homes of the past. There is bipartisan support for such a reform in Congress, but Trump needs to push it through. This is arguably the quickest policy means of addressing the supply of affordable housing.
Calibrating Tariff Policy
Tariffs are central to the Trump Administration’s America First strategy and help to support the revitalization of manufacturing and other critical domestic industries. Even so, the administration has shown flexibility in crafting its tariffs and tariff exemptions. Increasing tariff exemptions for lumber or other critical housing construction inputs could also help lower the costs of new construction. Even lowering costs 2-3%, would translate into thousands of dollars—before interest—in the price of a home.
Other Supply Incentives: Rezoning And Retail Conversions
Tying federal grants to ending restrictive zoning policies is a more controversial tool the administration could use. It is certainly not the federal government’s role to rezone single family neighborhoods out of existence, something that Trump opposed when the Obama Administration arguably tried something similar. It is also true that awarding transportation money based on density is a good use of ensuring that tax money is spent where the most people can benefit. But many cities with the highest housing affordability and supply problems have been reluctant to rezone so that apartment buildings are co-located above or near metro stops (for instance).
Retail-to-residential conversions could repurpose empty commercial spaces in abandoned city centers now that the country faces the problem of underutilized commercial real estate as technology allows more people to work from home. Such an approach is also attractive for use in so-called Opportunity Zones backed by Republican South Carolina Sen. Tim Scott, who chairs the Senate Banking Committee, where other tax incentives spur investment in lower income neighborhoods or in adjoining tracts. There are Opportunity Zones in all 50 states.
Housing affordability is most acute at the lower ends of the income ladder because builders are simply failing to build starter homes in requisite numbers so that people, particularly younger generations, can move up the income scale.
Conclusion
The declaration of a National Housing Emergency would address the last major outstanding problem from the 2008 financial crisis, a problem that has only become more acute in today’s high-interest rate environment. Further, by addressing an intergenerational challenge, the Trump Administration can serve as a unifying force among disparate actors from families to construction companies and public interest groups.
It is not enough to lower mortgage rates, although that is critical. It is also necessary to harness market forces to ease the supply ‘shortage, whether that’s by reviving manufactured housing or removing other economic barriers. This is a major economic and generational moment for the Trump administration.
John East, is a former Capitol Hill staffer and the current Director of Research for ACG Analytics, a public policy analysis firm. David Metzner is the Managing Partner of ACG Analytics.
The views and opinions expressed in this commentary are those of the author and do not reflect the official position of the Daily Caller News Foundation.
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