- Biden’s top economist says high housing costs are a big part of pessimism in the US economy.
- Council of Economic Advisers Chair Jared Bernstein says federal incentives are key.
- “Building affordable housing doesn’t hold up in the current economic climate,” he said.
Americans are not happy with the state of the economy. Consumer sentiment is low and even lower.
That’s despite a rare economic recovery since the pandemic pushed the country into a recession. We were able to see inflation drop while maintaining low unemployment – something many economic experts warned would not happen.
Jared Bernstein, chairman of the US Council of Economic Advisers, says the disconnect between the data and Americans’ perceptions of the economy likely has a lot to do with persistent sticker shock.
“I think it all comes down to inflation,” Bernstein said during a policy briefing Wednesday at the Economic Policy Institute in Washington. “I think it’s about prices. I think we’re trying to talk to people about disinflation, and what they want is deflation. They want their old prices back, dammit.”
Price growth has slowed in recent months, but broad price levels themselves are unlikely to fall without a deeper, more damaging recession. If people knew how bad the economy would have to do to cause deflation, they might think otherwise, Bernstein added.
One expense that doesn’t seem to be going down anytime soon: housing. Rent and home prices are through the roof and housing affordability has reached record lows.
The severe housing shortage is the main reason for the high cost of housing. The US is short anywhere between an estimated 1.5 million and 5.5 million homes. High interest rates have scared away potential buyers and sellers and slowed home construction rates. And high mortgage rates haven’t pushed down home prices as much as they’d hoped, creating an “interesting headwind” for the economy, Bernstein said.
Housing policy is largely in the hands of local and state governments, but there are ways for the federal government to intervene and push for more homebuilding and lower housing costs, including subsidizing rents. , home ownership, and development.
The government needs to act, Bernstein said, because affordable housing is suffering from market failure.
“Building affordable housing doesn’t hold up in the current economic climate,” he said.
Model policies, which focus on subsidizing the need for housing, including rental assistance programs like Section 8 vouchers, are important, Bernstein said, but the administration is “very, very focused on the supply side.” That means the government is more concerned with subsidizing supply additions to meet shortages.
In May, Biden unveiled a “Housing Action Plan,” which included efforts to encourage more growth and more affordable housing construction. Bernstein said the administration has two main strategies. One is to encourage local governments to eliminate exclusionary zoning, which often makes it illegal to build anything but single-family homes. Under Biden, cities and towns that have changed their land-use regulations to make it legal to build larger, more affordable housing have gotten a leg up on their applications for some federal grants.
“If you get more points in your quest to build a transportation hub under bipartisan infrastructure legislation because you put affordable housing in that area — well, we’re like a good deal. And that’s exactly what we’re doing,” Bernstein said.
The second way Biden is working to lower housing costs is to help developers with costs by expanding tax credits. The low-income housing tax credit subsidizes the purchase, construction, and renovation of affordable housing – and it’s widely popular with a variety of interests.
“Low-income housing people love it, bankers love it because they buy the credits and use them against their tax liability, and builders love it,” he said. “And so that’s a nice triumvirate right there.”
But the administration’s efforts are not enough. Congress failed to pass larger grants that Biden proposed to eliminate single-family zoning. Experts say the federal government should be more aggressive in rewarding — and punishing — state and local governments based on their efforts at home.