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Federal Reserve Speeches·

Barr, A Long-Term View on the Costs of Shelter

  • The Federal Reserve has increased policy rates to address inflation above the 2% target, which is driven by economic shocks including tariffs, global conflicts, and AI investment demand.
  • Homeownership affordability has deteriorated significantly, with the Federal Reserve Bank of Atlanta's index falling to 68 in July 2026, the lowest level in 21 years, due to record-high home prices & high mortgage rates.
  • Rental affordability has also declined, with about half of all renters cost-burdened (paying 30% or more of income on rent) & one-fourth dedicating at least half of their income to housing.
  • Real median household income rose only 17% between 2000 & 2024, while real U.S. house prices increased approximately 70%, creating a significant gap in purchasing power.
  • The U.S. faces a housing supply shortfall estimated at 2 million to 5.5 million units, exacerbating price pressures despite representing only 1% to 4% of the total housing stock.
  • Four major factors drive the housing shortage: restrictive local land use & zoning regulations, stagnant construction productivity since 1987, the long-term loss of skilled labor after the Great Recession, & post-pandemic spikes in material & labor costs.
  • High mortgage rates have created a "lock-in effect" where nearly 80% of homeowners with rates below 6% are reluctant to sell, further constraining supply & increasing prices.
  • Additional costs for homeownership include rising property taxes & home insurance premiums, which have increased significantly in recent years.
  • The Community Reinvestment Act (CRA) facilitated over $430 billion in loans & investments for affordable housing & homeownership in 2024, leveraging private capital to support low- & moderate-income communities.
  • The Low-Income Housing Tax Credit (LIHTC) creates an average of 110,000 affordable housing units annually, totaling about 4 million apartments since its enactment.
  • Recent bipartisan legislation addresses zoning barriers, expands rental assistance, supports manufactured housing, & encourages commercial-to-residential conversions.
  • Public-private collaboration remains essential to advance affordable housing, with local leaders focusing on cutting red tape & investing in community-specific solutions.