Tobias Peter assesses current needs in America’s housing supply.
As housing affordability dominates national headlines, policymakers from the White House to Capitol Hill are scrambling for answers—but focusing on rising prices alone obscures the deeper problem: an entrenched shortage of homes.
Home prices rising isn’t automatically a sign of a healthy housing market. When appreciation runs far ahead of incomes for years, it stops looking like wealth creation and starts acting like a quiet tax on everyone who didn’t buy early.
The current administration’s economic assumptions—including expectations of lower mortgage rates and strong economic growth—point toward a housing market outcome that deserves closer scrutiny. Under those conditions, and holding supply constraints constant, our estimates suggest that home prices could rise by roughly 10 percent per year. That isn’t automatically a sign of success.
When it comes to home price appreciation, it’s best to avoid extremes—neither too much nor too little. Appreciation that runs far ahead of incomes for prolonged periods creates its own set of problems.
As a country, we have recent experience with what sustained appreciation looks like. Since 2012, national home prices have risen by roughly 144 percent, while household incomes have increased by only 64 percent. Unsurprisingly, housing affordability has become one of the most salient political issues in the country. From that perspective alone, it’s worth questioning whether rapid home-price appreciation should be treated as a policy success.
Yet that kind of price growth is often framed as an unambiguous positive—a wealth effect that boosts household balance sheets and consumer confidence. But home price appreciation isn’t free wealth. When prices rise much faster than incomes for extended periods, the downsides accumulate and affect far more people than is commonly acknowledged, including many homeowners themselves.
Start with the macro picture. Rapid home-price appreciation increases boom-and-bust risk and diverts capital toward existing housing rather than productive investment.
