The Richmond Fed’s Director of Research and two leading housing experts recently took center stage at the Richmond Fed to examine the factors currently affecting housing affordability in the United States.
The District Dialogues series is designed to bring together experts and community members to discuss today’s most pressing business issues. The February 23 session covered “The Ups and Downs of the Housing Market” and panellists included Greta Harris, President and CEO of the Better Housing Coalition; Jim Tobin, executive vice president of the National Association of Homebuilders; and Kartik Athreya, director of research at the Richmond Fed. Richmond Fed Regional Executive Renee Haltom hosted the program, which also included an audience at the bank’s Baltimore branch and an additional virtual audience from around the country.
Haltom opened the program with an overview of housing facts and why the issue is relevant to the Richmond Fed.
“At the Federal Reserve, we’re almost always interested in housing, partly because it’s such a big part of the economy,” Haltom said. Additionally, she said, housing is often the largest asset in a household’s financial portfolio and therefore has a major impact on a household’s financial health.
“Home ownership is not a risk-free investment,” she says. “Real estate prices can go up, but they can also go down.”
After welcoming the panelists onto the stage, Haltom asked them to share their perspectives on the key factors influencing recent housing trends.
Tobin noted that through the National Association of Homebuilders’ alliance with 140,000 companies and organizations involved in some aspect of homebuilding, from real estate to construction, he has had a front-row seat to supply chain challenges since Covid, which was led to an escalation in construction costs, which combined with population growth and population shifts led to a shortage of available housing for all income brackets.
“This is a supply crisis; we have demand,” Tobin said. “We have to build about 1.5 million houses a year. Until we return to this trend, we will never be able to meet the demand.”
That gap means first-time homebuyers are currently being squeezed out of the market, Tobin said. Athreya pointed out that the research agrees: “What you have are supply constraints like zoning, construction costs and the like, and at the same time other forces that are changing broad-based demand. It is not surprising that the result is a (more) expensive product.”
Harris drew on her experience of affordable housing to determine that the people most likely to be deprived of their home price or who struggle with housing stability are community members who provide valuable services. That’s important, she said, because housing affects so many other factors in our lives.
“The people who … serve you in the restaurants … take care of your children — if we stop asking, ‘Do you have problems with your apartment?’ Many would say yes. Where you live matters. It can impact a child’s ability to receive an excellent education and contribute to society. It’s also a social determinant of health.”
The panellists discussed possible solutions that could help expand the housing supply. Noting that a range of policies at the local, state, and national levels affect housing, they agreed that regional collaboration at the local level could be beneficial, regardless of the specific policies being supported.
Regarding housing demand, the panelists noted that home ownership is often seen as a key element of the American Dream as it can be a vehicle for wealth creation. At the same time, Athreya found that the return to homeownership is often not as great as many imagine due to costs such as house maintenance and purchase fees. Finally, he noted, the financial returns from home ownership have historically been modest, which is to be expected given that it is an asset that is actively used and not bought for appreciation like stocks.
“Rich people own houses; Owning a home doesn’t mean you’ll get rich,” he said.
The conversation included a question and answer session with the in-person and virtual audience. Some listeners reported on their own experiences with home ownership, others asked about the role of investors and to what extent technologies such as prefabricated construction can help with the housing supply problem.
Athreya suggested that housing affects us all, regardless of one’s perspective on the housing market. “There’s something in this edition for everyone to want to do it right.”
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