Trump's Approach to Housing Affordability
Deregulation alone cannot make homes affordable when rising inequality, rather than zoning, is the primary driver of increasing prices.
Former President Donald Trump has expressed a distinctive perspective on housing within US politics. At a recent cabinet meeting, he stated:
“I don’t want to drive housing prices down. I want to protect the value for people that own their homes.”
While unaffordable housing remains a central issue in the ongoing affordability crisis frustrating many voters, Trump 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.”
Some of Trump's statements are difficult to reconcile with economic realities. His campaign once set a goal of cutting the cost of a new home in half by eliminating regulations that increase construction costs. However, this overlooks the fact that cheaper new entry-level homes would exert downward pressure on the prices of existing housing stock.
Housing affordability is a complex issue. Currently, owning a median-priced home consumes about one-third of the income for a family at the middle of the income distribution. Renters spend nearly 40% of their total expenditures on housing.
Trump may believe he can achieve multiple objectives by consulting with his Federal Reserve chair nominee, Kevin Warsh, to encourage the Federal Reserve to cut interest rates, thereby supporting high home prices while lowering mortgage payments. However, long-term interest rates, which influence mortgage costs, would likely rise if investors become concerned by interference with monetary policy.
None of Trump's comments address the fundamental factor driving housing prices upward: rising income inequality. This inequality is fueled by the concentration of college-educated workers in high-paying jobs, who bid up housing prices across urban areas, pushing them beyond the reach of workers without a college degree.
Deregulation and Zoning: A Popular but Insufficient Solution
Trump is not alone in advocating deregulation. Proposals to relax zoning restrictions to increase housing supply have gained significant support across the political spectrum, from homebuilders' lobbies to the Biden administration. These proposals are often presented as a silver bullet to resolve the nation’s housing shortage.
These proposals have merit. Numerous studies indicate that increased housing regulations and stricter zoning in some of the country’s most dynamic coastal cities have limited development and contributed to rising housing costs. In contrast, less regulated cities in the Sun Belt have managed to keep prices more stable.
However, recent research challenges the narrative that stricter zoning laws are the main cause of rising housing prices in recent decades, and that deregulation alone can restore affordability at the necessary 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 generally risen in line with average incomes.
What has exacerbated the problem is that average incomes in urban America have not kept pace with the rising wages of college-educated workers attracted to high-paying jobs in cities. These workers bid up housing prices, making them unaffordable for lower-income workers.
For example, in Houston, which has relatively lax zoning regulations, rents increased approximately fourfold between 1980 and 2019. This rise corresponded roughly with wage increases for workers holding at least a four-year college degree. However, rent increases far outpaced wage growth for non-college workers, particularly those in the lower 25th percentile.
In San Francisco, where construction is more heavily regulated, rents rose by seven times on average over the same period, and by 6.5 times for lower-income renters paying half the median rent. These increases greatly exceeded wage gains for non-college workers, which rose by only 3.5 times.
The Limits of Increasing Housing Supply
Building more housing would exert downward pressure on home prices and rents. The critical question is the speed at which this can occur. Using estimates from existing literature on how quickly prices respond to increased supply and how fast market-rate housing depreciates, researchers estimated that a shock increasing the housing stock by 1.5% per year — a rate at the 90th percentile of growth among US cities between 2000 and 2020 — would reduce prices by between 0.6% and 4% annually.
At this rate, it would take between approximately 16.7 and 113.4 years to make the median one-bedroom rental apartment in Houston affordable for the median worker without a college degree. In Boston, the timeframe would range from 8.9 to 60.4 years, and in San Francisco from 18.3 to 124.1 years. This analysis does not account for the fact that relaxing zoning rules could increase land prices and construction costs.
Other Policy Proposals and Their Challenges
This is not an endorsement of alternative proposals to improve housing affordability. For instance, the plan to expand rent control in New York City is unlikely to be effective. While expanded rent controls help some low-income tenants remain in their apartments, they also reduce the supply of affordable housing by encouraging landlords to convert rental units into condominiums or demolish them.
Research has found that rent control has contributed to the gentrification of San Francisco.
Conclusion
Addressing the housing crisis requires increasing the supply of affordable homes. However, this will not be achieved solely by deregulating and allowing builders to construct more housing. Regardless of the Trump administration’s efforts, deregulation alone cannot solve the problem.
