Biden’s new plan to fix the housing crisis includes 100,000 new homes when the US actually needs as many as 7 million

Joe Biden
President Joe Biden. AP Photo/Evan Vucci
  • Biden rolled out a plan to boost home construction and counter soaring prices in the housing market.
  • The move follows four months of record price growth and would address just a fraction of the US housing shortage.
  • Regulatory changes aim to build 100,000 affordable homes over three years, but the US is short millions of homes.
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After months of soaring prices, supply shortages, and affordability pressures, the Biden administration is finally doing something about the US housing crisis.

The White House rolled out several regulatory changes on Wednesday in an effort to boost home construction and lower barriers for first-time homebuyers. The administration will leverage its authority over regulators including the Federal Housing Finance Agency to address the nationwide home shortage. Together, the changes aim to build and preserve 100,000 new and affordable homes for buyers and renters over the next three years, according to a press release.

The White House’s proposed measures are relatively small on their own. One would expand a grant program for Community Development Financial Institutions to spur construction of affordable homes. Another would push state and local governments to reduce exclusionary zoning.

One change seeks to increase investment in manufactured homes, which are made in factories and not on their own lots, tend to cost less, and offer more affordable alternatives to lower-income buyers.

A handful of other efforts aim to level the playing field between investors and everyday Americans. Investment firms rushed to the housing market after the financial crisis, snapping up properties at low prices and earning steady income by renting them out. That trend accelerated through the pandemic as more institutional investors started buying rapidly appreciating homes, but the spree further eroded affordability. The administration plans to give first-time buyers and philanthropies a chance to buy distressed properties insured by the Federal Housing Administration, giving them a critical head start over Wall Street.

The trouble is that decades of underbuilding have left the US with a massive shortage of available homes. Estimates of the housing deficit range from 3.8 million units to 6.8 million units, according to Freddie Mac and the National Association of Realtors, respectively. And while construction has steadily increased, it’s still well below the levels needed to match supply with demand.

A crisis already in full swing

The changes are a promising first step toward countering the price surge seen through 2021, but they might arrive too late for the country’s most desperate buyers.

Home prices have already risen at record pace for four straight months. The unprecedented level of home-price inflation has been a product of massive demand from pandemic-era movers and inadequate home inventory.

The crisis has also been unusually broad-based. Where major cities had been the epicenters of home shortages and soaring prices, pandemic-era migration saw those problems spill over into smaller cities, suburbs and even more rural exurbs.

The latest measures of housing-market activity suggest the boom is slowing. Sales of new and previously owned homes edged higher in July while inventory also increased, suggesting Americans were having an easier time finding homes and closing deals. Yet prices continue to climb at record pace, suggesting the post-pandemic market will still feature a higher barrier to entry.

The White House’s plan isn’t the only housing support in the works. President Joe Biden has also urged Congress to spend roughly $US213 ($AU291) billion on homebuilding initiatives as part of Democrats’ $US3.5 ($AU5) trillion infrastructure proposal. That funding is estimated to create another 2 million new homes. Yet pushback from moderate Democrats in the Senate stands to shrink the package’s price tag, which may mean housing initiatives shrink as well.

The US isn’t alone in working to shore up home supply. Canada’s Prime Minister Justin Trudeau unveiled a plan last week that aims to build 1.4 million homes over the next four years. He also wants to ban blind bidding – a process where buyers can’t see each others’ offers – and block the buying of Canadian homes for investment purposes. In New Zealand, Prime Minister Jacinda Ardern revealed measures in March meant to bolster residential infrastructure and provide more loans and grants to first-time buyers; she also became the first head of state to instruct their central bank to assess housing prices as part of its mandate.

Biden’s plan doesn’t require congressional approval, meaning it will probably take effect before Democrats’ infrastructure package gets a vote. And while it represents a critical step toward normalizing the market, its 100,000 target is a drop in the bucket for the country’s historic shortage.

[Editor’s note: The story has been updated to include Freddie Mac’s estimate of the housing shortage, as well as the number of homes expected to be built with funding from Democrats’ infrastructure proposal.]