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The Richmond Fed’s director of Research and two leading housing experts took center stage recently at the Richmond Fed’s downtown location to explore the factors currently affecting housing affordability in the United States.

The District Dialogues series is intended to bring experts and community members together in discussion around today’s most pressing economic topics. The February 23 session covered “The Highs and Lows of the Housing Market,” and panelists included Greta Harris, president and CEO of the Better Housing Coalition; Jim Tobin, executive vice president of the National Association of Homebuilders; and Kartik Athreya, director of Research at the Richmond Fed. Richmond Fed Regional Executive Renee Haltom moderated the program, which was also attended by an audience at the Bank’s Baltimore branch and an additional virtual audience from around the country.

Haltom kicked off the program with an overview of housing market facts and shared why the topic is relevant to the Richmond Fed.

“At the Federal Reserve, we’re almost always going to be interested in housing, in part because it’s such a big part of the economy,” said Haltom. Moreover, she said, housing is often the biggest asset in a household’s financial portfolio, and as a result, has a big influence on a household’s financial health.

"Home ownership is not a risk-free investment,” she said. “Housing prices can rise, but they can also fall.”

After welcoming the panelists to the stage, Haltom asked them to share their perspectives on the key factors affecting recent housing trends.

Tobin noted that through the National Association of Homebuilders’ alliance with 140,000 companies and organizations affiliated with some aspect of housing, from real estate to construction, he has had a front row seat to supply chain challenges since Covid, leading to an escalation in building costs, which, combined with growth and shifts in population, created a deficit of available housing for all income levels.

“This is a supply crisis; we’ve got demand,” Tobin said. “We need to build about 1.5 million homes per year. Until we get back to that trend, we will never be able to meet demand.”

That gap means that first-time homebuyers are being priced out of the market right now, Tobin said. Athreya indicated that research concurs: “What you’ve got is supply constraints like zoning, construction costs and the like, and at the same time other forces changing broad-based demand. It’s not surprising that the result is a (more) expensive product.”

Harris drew on her experience in affordable housing to note that the individuals who are most often priced out of homeownership or struggling with housing stability are community members that provide valued services. That matters, she said, because housing influences so many other factors of our lives.

“The folks who … serve you in the restaurants … take care of your kids – If we stop to ask, ‘Are you having trouble with your housing?’ many would say yes. Where you live matters. It can impact a child’s ability to get a great education and contribute to society. It is also a social determinant to health."

The panelists discussed potential solutions that might help expand the supply of housing. They noted that a range of policies at the local, state and national level influence housing, and agreed that, regardless of the specific policies one supports, regional collaboration at the local level could be beneficial.

With respect to housing demand, the panelists noted that homeownership is often considered to be a key part of the American dream, because it can be a vehicle for building wealth. At the same time, Athreya noted that the return to homeownership often isn’t as great as many imagine because of costs like home maintenance and purchase fees. In the end, he noted, financial returns to homeownership have historically been modest, which is to be expected because it is an asset that is being actively used rather than purchased for appreciation, like shares of stock.

“Rich people own homes; it doesn’t mean if you own a home you’re going to be rich,” he said.

The conversation included a Q&A session with the in-person and virtual audiences. Some audience members shared their own experiences with homeownership, while others asked about the role of investors and the extent to which technologies like prefabricated construction can help with the housing supply problem.

Athreya suggested that regardless of one’s perspective on the housing market, housing impacts us all. “There’s something in this issue for everyone to want to get this right.”