Heading into 2025, housing remains one of the most important issues on the minds of millions of Americans. For many, the dream of owning, or even renting, a place of their own is in peril. In some cities, people are paying $1 million for "starter" homes, while about half of renters are spending more than 30% of their income on housing.
Ben Keys, an economist with the University of Pennsylvania Wharton School, characterizes the current market as "deeply unaffordable." Keys traces some of the current problems back to the financial crisis of 2008.
"We saw a collapse in construction, and so we just stopped building houses, we stopped building apartments for a few years there," he says. "Now we're seeing estimates of as much as four million houses that we're short."
Keys notes that new construction is occurring "at a snail's pace," due, in part, to the high cost of labor and materials and the difficulty of financing large projects. He says that zoning laws and land use restrictions can also contribute to a housing shortage: "[These] policies create a lot of hoops to jump through and make it challenging for developers who would like to build at the scale where they would like to build."
President-elect Donald Trump has suggested opening up federal land for development, but Keys questions the practicality of the plan.
"When we're thinking about this federal land out west, I'm pretty skeptical that we're going to see, you know, cities spring up out of whole cloth," he says. "Federal land seems promising, but as a solution to our affordability crisis, I just don't see it."
Interview highlights
On what Trump's proposed tariffs on imports, including construction materials, would do to the housing market
Basically, if we're going to raise the costs of construction materials, that's going to raise the cost of building a home. Now, a lot of the materials that are used for construction are domestic. So we do have a lot of those in the U.S., but we also import a number of construction materials like lumber for things that would be covered under NAFTA from Canada. But the simple math is that if we are going to impose additional tariffs on building materials, it's going to be more expensive to build rather than less expensive to build.
On what Trump's proposed mass deportations might mean for housing
I don't think that there is a strong connection between this idea of removing immigrants from our country and making housing more affordable. And there's a couple of reasons for this. One is that immigrants and undocumented immigrants make up a large fraction of the construction workforce. ... And so it is going to make labor costs more expensive to build, and that's going to drive up the cost of housing.
The trade off there, from a housing market standpoint — we're talking about this in a very narrow sense — is that there will be fewer people in this sort of numbers game of supply and demand. But if we think about the types of housing that immigrants and undocumented immigrants tend to locate in, they tend to be renters and they tend to locate in low-income neighborhoods. Now, of course, that's not uniformly true, but that's where they are concentrated. And so if we're thinking about the high cost of homeownership, removing undocumented immigrants from the pool of potential homebuyers is simply not going to move the needle on affordability.
On how climate change is contributing to the rise in costs for homeowners
I think there's a very direct line to be drawn between rising climate risks and the costs of homeownership in the form of property insurance. ... In just the last three years, 2020 to 2023, my research with Phil Mulder has shown that property insurance has gone up by over 33% on average in the U.S., and over 50% in the areas of the country most exposed to climate risk. … The places that might come to mind are places like Florida in the Gulf Coast, wildfire zones in California, but also some parts of Oklahoma where they're hit with a lot of hail storms and tornadoes. And there we've seen big run-ups in property insurance costs. And so what this has done is it's made the sort of predictability of home ownership a little bit less predictable. ...
I worry a lot for homeowners who had bought on a fixed income or were sort of constrained in how much they could afford and now they're seeing their insurance costs rise sharply. And so this is a reflection of climate change … which is inducing more frequent and more severe disasters. But it's also a function of mobility patterns. And where we've moved in this country over the last really 50 years, we've been moving into the danger zones. We've been moving into harm's way.
On how the housing crisis impacts homelessness
The number of extremely affordable rental units has plummeted in recent years, and this ties back into a housing shortage. Where does that housing shortage squeeze the most? It's going to squeeze the most at the very bottom of the property ladder. Landlords who previously offered very affordable units have seen a great deal of demand for those units. They're able to raise the rents. And so we've seen a lot of people fall off the bottom of the rental market, and that's led to a ton of pressure, especially in expensive markets, and I think in many ways the diagnosis is quite clear that we have this supply-and-demand imbalance.
And so the cure is that we need more housing, that we need to prioritize housing. And this has been taken up with what's been known as a "Housing First" strategy for dealing with homelessness. ... With the Biden administration, there's been an emphasis on this strategy, a recognition that many of the additional challenges that these households face can only be addressed once they're in a stable housing environment. And there have been a number of pilot programs around the country that have borne this out.
On advice he would give to people who are debating whether or not it's a good time to buy a home
First, do your homework and figure out the cost of housing in the market that you're looking in, both for owning and for renting. I think it makes a lot of sense to continue to rent in markets where prices are high and interest rates are high. In many cases ... you'd be better off putting your savings into something that's delivering a safe, predictable return that might be more safe and predictable than returns on housing. So from an investment standpoint, investing elsewhere is very sensible.
And then, I think, as you're approaching the decision to buy a house, think long term, because there are large fixed costs to buying a house in terms of transaction taxes and in terms of broker fees, title insurance and other costs that need to be rolled into that cost. When you're doing an apples-to-apples comparison, the right comparison isn't just comparing the mortgage payment to the monthly rent. And then on top of that, there's a challenge with rising insurance costs and property taxes. And so you need to take a view on "Can I afford the property insurance, flood insurance, wind insurance, other (or supplemental) insurance policies in a few years when those may be more expensive than they are today?" So I think it takes a more careful budgeting approach than we've seen in the past. And, in many of those cases, my sense is that that's going to come out on the rental side of the ledger rather than owning, given our current affordability crisis.
Monique Nazareth and Anna Bauman produced and edited this interview for broadcast. Bridget Bentz, Molly Seavy-Nesper and Catherine Laidlaw adapted it for the web.
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