Six-Chart Sunday – Housing Emergency?
6 Infographics + 1 Video (California housing reporter Moira Ritter) + Link to upcoming live discussion (9/9 at 5pm: Dan Wang's "Breakneck: China's Quest to Engineer the Future")
On Monday Treasury Secretary Scott Bessent said the Trump administration may declare a national housing emergency in an effort to address high housing prices and limited inventory. Liberal economist Paul Krugman concurs: “Yes, there is a housing emergency.” Concerns over high housing costs and low inventory are neither new nor partisan. But whether it’s a “national emergency” – and what to do about it – remain hotly debated.
The Trump Administration frequently taps emergency powers. Many laws give Presidents additional authorities to act in the event of national emergencies such as the 9/11 attacks, the Great Financial Crisis or COVID. There are no formal definitions of what qualifies as an “emergency,” and courts have shown wide latitude to Presidents in making that determination. The Trump Administration has declared more emergencies more often than any of its predecessors, citing nearly a dozen to justify & expedite executive action.
Housing prices are indeed historically-high. “Inflation adjusted home prices are now a near-record 100% higher than the long-term 130-year average… The only 2 times in history that home prices were this far above the 130-year average were 2006 and 2024.” Even on a square-foot measure, home prices have risen over 50% since 2020 (Redfin). But new construction (and thus prices) vary by region, leading Derek Thompson to observe that “there are 2 housing Americas now… if you live in the northeast or midwest, prices are rising everywhere around you... If you live in the south or west, [with far fewer barriers to building], prices are falling everywhere around you.”
New U.S. housing supply has trailed demand, driving prices higher. Since the end of the Great Recession (June 2009), 20.45M new households were formed while only 18.54M new homes were built in the U.S. (Bianco Research).
Home mortgages remain affordable relative to income, while entry costs (down payments) are historically-high due to prices. The great Noah Smith shared this fascinating breakdown by the Economic Innovation Group which “shows that mortgages are about as affordable as they ever were,” – requiring ~2 weeks of full-time work, same as the late 80s/early 90s – “but down payments have gotten less affordable.”
Existing homeowners feel stuck – unwilling or unable to trade existing low mortgage rates for higher rates on new homes. While new home mortgages currently average 6.5% – slightly down from the past two years but well-above the previous two decades – existing homeowners pay far less under their existing mortgages. As of the end of 2024, more than half of outstanding mortgages had an interest rate below 4%, and over 85% of current outstanding loans had an interest rate below 5%. Thus, current homeowners feel “locked in” and unable to move or downsize.
Construction labor markets are tight due to immigration crackdowns, which increase cost & time to build / renovate homes. Immigrants make up one in four workers in the construction industry. Ramped-up immigration enforcement has impacted nearly a third of construction firms, according to a survey released Aug. 28 by the Associated General Contractors of America and the National Center for Construction Education and Research. Labor shortages remain the leading cause of project delays, with 45% of contractors citing worker gaps as the cause. 92% percent of respondents reported difficulty filling open positions.
SO WHAT? It’s a lot easier to declare a housing emergency than to solve one. The Administration could reduce labor shortages by easing immigration enforcement in construction, but that could anger the base (as the President found recently when floating a similar idea for farm workers). It could exempt construction materials from new tariffs, which are increasing costs, but that would reduce tariff revenue and might undermine Trump’s trade agenda. It seems unlikely that the President could unilaterally slash interest rates even citing “emergency powers,” and regardless, bond markets react poorly when Fed independence is threatened. No doubt Washington could help with tax rebates and subsidies, though that may require legislation. Or perhaps the Administration will claim emergency powers to override local zoning, permitting, labor & environmental regulations? Move over NIMBY & YIMBY, here comes TIMBY.
Join us this Tuesday, Sept. 9 at 5pm ET, as Dan Wang discusses his NYT bestseller “Breakneck: China’s Quest to Engineer the Future”. (Register here)
VIDEO (8 min)
Moira Ritter covers California housing markets and policy for Homes.com (mritter@costar.com). I asked her three questions about this week’s topic:
The sixth chart shows our national schizophrenia on immigration. Yes, we want criminal immigrants out. But when we target hard-working immigrants, we undermine many industries - but especially construction. We need a plan like the one proposed by George W. Bush, where we secure the border, kick out criminals, and come up with a plan (he called it a blue card) for immigrants who have obeyed all our laws, worked hard, and avoided government handouts. They will become legal after paying an appropriate fine and obtaining proper registration with the Social Security Administration. Their continued stay will require them to keep obeying our laws. They can be legal permanent residents, but their punishment for breaking the law and illegally migrating is that they never get to be full citizens, though their children do. We should consider including exceptions so that serving in the military, being a first responder, or performing heroic deeds would qualify for citizenship.
One factor of the housing crisis that does not get enough attention is the historically low interest rates that existed after the 2008 financial crisis. When the economy recovered, Central Banks should have begun to increase interest rates in 2011 or 2012 gradually. A half percent a year for two or three years would have avoided today’s interest rate trap.