Possible State of Emergency in Housing Sector
Treasury Secretary Scott Bescent recently indicated that the Trump administration might declare a housing emergency. This comes as summer home sales have hit the lowest level in a decade, with over 15% of transactions in July falling through—the highest cancellation rate since records began in 2017. Although prices are lower than during the pandemic, they still remain unaffordable for many workers and middle-class families.
Bescent’s warning is indeed timely, and acknowledging a housing emergency seems overdue.
For years, politicians have touted the benefits of homeownership while simultaneously backing policies that complicate achieving it. The U.S. can’t keep up with housing demand, and numerous government regulations make existing homes pricier than they should be.
Experts estimate a shortfall of 3.2 million to 5.5 million homes in the U.S. Freeman Mac notes this gap at around 3.8 million, whereas the National Union of Low Income Housing for Low Incomes suggests a lack of over 7 million affordable and accessible homes. This disparity between supply and demand is a significant factor driving up prices.
The crux of the issue is the burden of government regulations.
According to a survey by the National Association of Home Builders, regulations at all levels add nearly 24% to the cost of new single-family homes and more than 40% to new apartment prices. Zoning laws that restrict density, lengthy permitting processes that can stretch for years, and varying building codes complicate matters, resulting in unnecessary expenses and delays. In some cities, completing a project can take over a decade.
If the Trump administration moves forward with declaring a national housing emergency, the resulting strategies shouldn’t just tinker with existing markets or expand bureaucracies. It should focus on eliminating barriers that hinder the private sector from meeting current housing demands.
Strict regulations on developers and landlords lead to fewer homes being available and make affordable buying increasingly challenging. In contrast, when the market operates freely—where permits are expedited, loans are accessible, and development aligns with demand—home availability increases and prices stabilize.
California exemplifies this trend. Decades of stringent zoning and environmental regulations have nearly halted construction, leaving the state short by approximately 1.3 million units. On the flip side, Texas, with its quicker approval processes and high-density development allowances, has seen an increase in supply and a slowing of price hikes. In fact, home prices there are dropping faster than anywhere else.
Rather than learning from Texas and addressing the underlying issues of housing shortages, Washington often redirects blame towards the private sector.
Take, for instance, the recent criticisms of rent pricing software.
The initiative, started under President Biden, has wrongly targeted technology that provides real-time pricing data. While it may sound appealing to point fingers at AI, that’s much like blaming meteorologists for rainy weather. The technology simply reflects the market dynamics, and regulating it isn’t going to solve housing shortages or lower costs for families.
Similarly, some lawmakers have attacked housing investors. A study from New York University indicates that rental markets with high institutional investments see lower rents. By adding properties into the mix, competition increases, which helps bring costs down.
What does all of this mean?
The Trump administration should think of its role as facilitating market activity rather than constraining it. The key to addressing the affordable housing crisis lies in building and investing in more homes.
One potential solution could involve reforming local and state policies by linking certain programs and grants to the removal of outdated construction restrictions, like those limiting multi-family units in high-demand areas.
Another avenue would be to simplify federal permitting for infrastructure projects that support housing, like roads and public works. These projects are often delayed or too costly, which discourages builders, so streamlining them could encourage more construction.
The White House has already prioritized economic measures that relieve unnecessary burdens from workers and businesses, like cutting taxes on tips and overtime, reducing red tape, and fostering growth opportunities. Housing should similarly be approached. By minimizing government interventions and allowing more room for private investment, we can find a way forward.
This strategy proved effective in the past. Federal leaders just need to embrace it again.
