President Biden unveils a new affordable housing plan to tackle the supply shortage

The Biden administration released an action plan to address the country’s shortage of affordable homes. The efforts to tackle the mismatch between demand and supply include: expanding federal financing for the construction of affordable housing and encouraging local authorities to reform zoning laws by rewarding them with grants. 

The insufficient supply of entry-level housing pushes many first-time buyers further away from becoming homeowners. In the early 1980s, entry-level or starter homes, which are any residential property bought as a first home, made up 40 percent of all new construction supply. By 2019, this number dropped to only 7 percent, according to the research released by Freddie Mac.

To address the declining affordable housing inventory, President Joe Biden plans to produce and preserve more manufactured housing, accessory dwelling units, which include backyard homes and basement apartments, and smaller multifamily buildings. These measures must help close the U.S. housing supply shortage in five years, according to the White House. 

“As his Action Plan reflects, President Biden believes the best thing we can do to ease the burden of housing costs is to boost the supply of quality housing. This means building more new homes and preserving existing federally-supported and market-rate affordable housing, ensuring that total new units do not merely replace converted or dilapidated units that get demolished,” the White House stated. 

The declining construction levels coupled with high demand and low supply of existing homes continue to fuel a surge in rent and sale prices. The U.S home prices increased by 20 percent year-over-year in February, CNN reports. However, according to Freddie Mac, the approach to solving the current shortage of affordable and entry-level housing requires more than just building new homes. Experts at Freddie Mac propose to increase the affordable housing supply by getting 3.8 million vacant units back on the market. 

"Unfortunately, it doesn't seem that building our way out of the challenging housing inventory supply issue is an option, based on the complexity of the economic and housing landscape," said Sam Khater, chief economist and head of economic and housing research. It will require looking at new solutions to resolve."

Resources:

“President Biden announces plan to ease burden of housing costs,” (ABC7 New York, 2022)

“President Biden Announces New Actions to Ease the Burden of Housing Costs,” (The White House, 2022)

“Biden Administration Targets Housing Supply Shortage with Affordable Housing Plan,” by  Andrew Ackerman and Nicole Friedman (The Wall Street Journal, 2022)

“The Shortage of Starter Homes Extends Beyond Major Cities,” by Julia Carpenter (The Wall Street Journal, 2021)