Treasury Secretary Janet Yellen announced several small-scale measures advertised as an effort to boost the country’s housing supply as families suffer from an explosive rise in home prices and mortgage rates under President Joe Biden.
Yellen will unveil the policies during a speech on Monday in Minneapolis. Among the measures is $100 million over the next three years in a new housing fund, which is designed to support financing for affordable housing.
The Treasury Department said the new funding will support the financing of thousands of affordable housing units.
“Given the scale of the challenge, we must and will continue to do more,” Yellen will say in her speech.
Yellen will also call on the country’s Federal Home Loan Banks, which are government-sponsored enterprises, to increase support for housing programs.
By law, the banks are required to devote at least 10% of their net income to housing programs, and while they have already voluntarily increased that level to 15%, the Biden administration is urging them to raise the commitment to at least 20%.
If that higher level of commitment had been in place over the past five years, the Treasury said, the banks would have contributed almost $2 billion more than was required by law.
The new initiatives are relatively marginal but speak to the dire need for more housing supply in the U.S. Decades of undersupply have helped lead to the housing crunch being experienced now, one that has priced out a huge share of the population from the housing market.
The country is short some 1.8 million homes, according to an estimate by Moody’s Analytics that was provided to the Washington Examiner late last year. Other estimates are much higher. For instance, a report from the Joint Economic Committee’s Republican staff pegged the number at as high as 20 million.
Housing affordability has tanked in recent years.
The median sales price for a new home has risen more than 40% since April 2020, right as the pandemic took hold and the Federal Reserve cut interest rates to near zero.
Mortgage rates quickly fell during the pandemic, and homebuyers were able to lock in sub-3% mortgages, a low level that was likely a once-in-a-lifetime steal. Since then, mortgage rates have more than doubled, and many of those who locked in those low rates are refusing to sell, further constraining the housing supply.
In April of this year, the median sales price for a new home was $433,500 and the median price of an existing home was $407,600, an increase of 5.7% from the year before.
As of this week, the average rate on a 30-year, fixed-rate mortgage was over 7%, according to Mortgage News Daily, which tracks daily changes in rates. That is down from a recent peak of above 8%, although it is still far higher than in the years prior to the pandemic.
The Biden administration has previously waded into the housing affordability crisis. Biden announced new affordability proposals during this year’s State of the Union address — although some economists believe the moves would actually make the situation worse.
Among the proposals was a $5,000 tax credit for middle-class first-time homebuyers for two years, which was pitched as a type of mortgage relief.
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Biden also proposed a $10,000 credit for those who sell their starter homes. The Biden administration described that credit as a response to the decrease in supply because pandemic-era homebuyers aren’t putting their homes on the market because of the higher mortgage rates.
Critics argued, though, that the moves could backfire by increasing demand and putting upward pressure on home prices.