The Real Problem with Housing Affordability

Housing affordability is a big issue in the US. Many people think high interest rates are the main problem. But that's not the whole story.

What's Really Going On

To understand the issue, let's look at the past. In 1989, the author bought a home for $259,000 with a 10.75% interest rate. Although the rate seems high today, the home price was reasonable compared to income. The system was also more forgiving.

Today, interest rates are lower, but affordability is worse. This tells us that something fundamental has changed. The real problem isn't the cost of borrowing money. It's the cost and scarcity of housing itself.

The Root of the Problem

For years, housing policy debates have avoided the core issue: there aren't enough homes. Zoning restrictions, high permitting costs, and regulatory issues have made it hard for builders to construct affordable homes. In many areas, it's almost impossible to build entry-level homes without losing money.

As a result, builders focus on high-end homes. This creates a shortage of affordable housing, making it harder for people to buy homes.

Proposed Solutions

Some federal policy ideas, like opening up federal land or expanding tax credits, might help a little. But they don't address the deeper issue of supply constraints created at the state and local level. Until these constraints are loosened, affordability will remain a problem.

Tax System Issues

The tax system also plays a role in the affordability crisis. After the financial crisis, institutional investors helped stabilize the market. However, the tax code still favors investors over individual homeowners. Investors can deduct expenses like interest, maintenance, and taxes in ways that owner-occupants can't.

The Mortgage Industry's Role

The mortgage industry isn't responsible for zoning laws or tax codes. But it can control how efficiently capital moves from investors to borrowers. Improving affordability requires reducing the cost of originating loans. Technology can help, but it must be used to remove friction and redundancy, not just add new tools.

Looking to the Future

Affordability will improve when the entire system works better. This means increasing supply, reducing transaction costs, coordinating policy, and aligning incentives with long-term stability. The mortgage industry must operate responsibly, advocate intelligently, and continually lower friction between borrowers and homes.