Donald Trump has an interesting view of how housing plays in US politics. “I don’t want to drive housing prices down. I want to drive housing prices up for people that own their homes,” he said at a recent cabinet meeting. Unaffordable housing may be front and center of the “affordability crisis” pissing off voters. Still, he insists: “We’re not going to destroy the value of their homes so that somebody that didn’t work very hard can buy a home.”
It can be hard to square some things Trump says with other things Trump says, let alone with reality. One can’t help but remember his campaign “goal of cutting the cost of a new home in half” by eliminating pesky regulations that raise the cost of construction. Forget that cheap new entry-level homes will weigh on the price of the existing housing stock.
And, to be fair, housing presents a complicated challenge. Owning a median-priced home these days eats up nearly half the income of a family in the middle of the income distribution. Housing absorbs almost 40% of the total expenditures of renters.
Maybe Trump thinks he can achieve his multiple goals by having a talk with his Fed chair nominee, Kevin Warsh, and get the Federal Reserve to cut interest rates to support high home prices and lower mortgage payments. Forget that long-term interest rates, which determine mortgage costs, would very likely rise if Trump spooked investors by messing with monetary policy.
But none of what he says addresses what is propelling the price of housing up: rising income inequality, driven by the concentration of college-educated workers in high-income jobs, bidding up the price of housing across the urban landscape, lifting it beyond the reach of workers without a college degree.
Trump is not alone in the push for deregulation. Proposals to relax zoning constraints on building to increase the supply of housing in order to meet increasing demand for homes have gained enormous traction on both sides of the political spectrum; from the homebuilders lobby to the administration of Joe Biden, as the silver bullet to fix the nation’s housing shortage.
The proposals make sense. Lots of studies suggest that increased housing regulation and tighter zoning rules in some of the country’s most vibrant cities along the coasts have limited development and led to rising housing costs, even as less regulated cities in the Sun belt managed to keep a lid on prices.
And yet, recent research casts doubt both on the narrative that rising housing prices in recent decades have been driven mainly by stricter zoning laws, and that deregulation can make things well again at the needed scale and speed.
A study by researchers from the University of California, Los Angeles, the London School of Economics, the University of California, Berkeley, the University of Toronto and the Georgia Institute of Technology, concluded that housing prices have been behaving pretty much as one would expect: rising in tandem with the rise of average incomes.
What has turned this into a problem is that average incomes across urban America have not followed the rising wages of college-educated workers who are drawn into cities by highly paid jobs and bid up the price of the housing stock, putting it out of reach of workers lower down the income scale.
Take Houston. Despite its comparatively lax zoning regulations, rents rose by a factor of about four between 1980 and 2019. The increase was roughly in line with the rise in wages of workers with at least a four-year college degree. The problem is that it far outpaced wage gains of non-college workers – those in the lower 25th percentile.
Chart showing the change in Houston’s income and rental prices
In San Francisco, where construction is much more regulated, rents have also followed average incomes up, rising by seven times, on average, over the period, and by 6.5 times for poorer renters paying half the median rent. That vastly outstripped the wages of non-college workers, which rose by 3.5 times.
Chart showing the change in San Francisco’s income and rental prices
Building more housing would put downward pressure on home prices and rents. The relevant question is at what speed. Using estimates from the literature on how fast prices would respond to increasing supply and how quickly market-price housing would depreciate, to come within reach of the working class, the researchers estimated that a shock that boosted the housing stock by 1.5% per year – which is at the 90th percentile of growth across US cities between 2000 and 2020 – would reduce prices by 0.6% to 4% per year.
At this pace, it would take somewhere between 16.7 years and 113.4 years to make the median one-bedroom rental apartment in New York affordable for the median worker without a college degree. In Boston, it would take from 8.9 to 60.4 years, and in San Francisco from 18.3 to 124.1 years. And this exercise doesn’t consider that relaxing zoning rules would also lift the price of land and the cost of construction.
This is not an endorsement of other proposals to increase housing affordability. Zohran Mamdani’s plan to expand rent control in New York City won’t work either. Expanded controls help some low-income tenants stay in their apartments, but they also reduce the supply of affordable housing, encouraging landlords to convert rental units into condos for sale or tear them down altogether. One study concluded that “rent control has actually contributed to the gentrification of San Francisco.”
Addressing the housing crisis does require increasing the supply of affordable homes. But this won’t happen merely by freeing builders to build more housing. (Whatever the Trump administration thinks, ICE can’t solve the problem either.)
