Biden’s Housing Supply Plan: Have Rising Interest Rates Caused a Bump in the Road?
Last May, we were excited to hear that President Biden had issued a Housing Supply Action Plan to “Help Close the Housing Supply Gap in Five Years”. While admirable in some respects, the plan may have hit a bump in the road…a bump placed in the road by the feds themselves. According to RentCafe, newly built units only represented 1.5% of the nation’s total housing supply.
The Biden Housing Plan outlined nineteen (19) action steps to accomplish its bold strategy with local zoning reform as a top priority. However, the plan also included investing the funding for constructing 500,000 homes for low- and moderate-income renters and homebuyers. However, what we’re seeing is that the costs of development projects have skyrocketed because of inflation and rising interest rates placing a major damper on supply.
In an attempt to put a chill on inflation, the Federal Reserve launched the largest interest rate increase since 1994 and indicated it would do whatever it could to subdue price hikes and bring down the cost of gas and food. The cost of food is still going up and so is the cost to build housing. The fed’s interest rate hikes put the possibility of homeownership out of reach for those who before the hike were in a position to buy a home. That resulted in an increased demand for renting and a decrease in supply. Development projects, even those that pencil out well are hitting the pause button because of the trickle-down effect of rising interest rates and inflation. The fact is, increasing the interest rates do not address the key driver of inflation in the housing sector: the persistent, long-term shortage of housing supply. The demand is still high, and the inventory is still low. If the Biden administration wants to close the housing supply gap within five years, it really has to seek other ways to lower inflation without extended rate increases from the feds.