Bipartisan Backing for US Housing Affordability Spurs Supply-Focused Policies

Nearly 80% of Americans Across Political Spectrum Support Federal Policies to Reduce Homebuying and Renting Costs.

The results of the recent Redfin survey found that 79% of Americans supported tax incentives and 77% supported federal measures to address affordability when it comes to purchasing homes, as well as majorities supporting measures such as putting a cap on rent increases, providing down payment assistance, and building more affordable homes.

It also reflects growing recognition of underlying issues driving the current housing affordability crisis: shortage of supply; excessive regulatory and bureaucratic obstacles; and, the financial challenges involved in purchasing a home.

There is also considerable support (57%) for making it easier to build homes in their own back yard. Support for easing local restrictions on home building is even across the party lines with 57% of Democrats and Republicans both saying it should be easier to build in their own community.

Although there are some numbers where Democrats express more support for an initiative than Republicans, overall there is more support for any given initiative that would address housing affordability than opposition to it, and thus housing affordability has transcended a partisan issue and has become a major economic issue facing the country.

This is especially relevant given the various issues currently being dealt with by Congress including streamlining permitting, removing some of the zoning restrictions currently enforced at the local level, and working to increase the supply of available homes. Developers and investors are especially interested in how all of these various issues play out in the long run as they will greatly impact both the demand for available homes and the subsequent prices of those homes over time.

Increased supply of housing could negatively impact prices in the short term. Over heated markets may fall faster than others. Also, increased housing may create new regulatory issues that hinder the developers' ability to meet their project timelines.

Policies to liberalize construction could fundamentally reshape segmental demand patterns in markets such as the US, as it has in Dubai with a variety of diverse housing projects, all built with the support of streamlined approval processes.

However, the root causes of the affordability crisis are deep-seated and continue to be fueled by mortgage rates and construction costs that are going in the wrong direction. Therefore, federal actions, or even any actions for that matter, are not going to have an immediate impact and are likely to take some time to have a material effect on the trends that are currently in place.

Practical Takeaways for Buyers & Investors:

1. Pay attention to changes in federal and state zoning and permitting policies. New policies can open up new areas of the market and release pent-up supply into the market.
2. Developers with experience in completing projects through changes in regulations are better bets to navigate through such changes and complete projects on time to capitalize on the easing supply of homes.
3. Focus on housing developments by developers who have successfully navigated through existing regulatory structures in the past and can translate federal policy relief into building new supply in a timely manner. Affordability-focused product types such as manufactured homes are also worthy of consideration, as they are currently receiving attention in terms of public policy initiatives aimed at expanding the housing options of a new set of demographics.
4. Evaluate the susceptibility of your portfolio’s performance to swings in individual markets due to fluctuations in policy initiatives, and expect an initial decline in prices to potentially give way to appreciable increases later.

The Wider Angle:

If housing affordability steps out of the mix of polarizing and highly contentious political issues and becomes instead a ‘uniter’, how will private developers and publicly funded institutions such as HUD innovate to address chronic shortages of supply? US watchers of the Dubai property market will get to see, before the rest of the world, how so rapid a shift in public regulation and, equally importantly, public opinion can come about in order to profoundly change the rules of the market.