The housing crunch, especially for affordable housing is at crisis levels according to experts.
How might the incoming Trump administration help or hurt the need?
We turn to UW Madison professor of urban planning, Kurt Paulson.
Thanks for being here.
Thanks for having me.
So what is the scope of the crisis in the housing system here in Wisconsin and nationally?
So Wisconsin mirrors a lot of the national trends, which is that home sales are down
year over year since the pandemic started.
That means there's just a lot less inventory for people to buy.
And prices are going up.
When you combine prices going up with higher interest rates, it means that for your starter
home, your first-time home buyer, millennials, Gen Z, younger workers, or seniors who want
to move down to something smaller, there's just no product available and anything that's
available is really expensive.
And so we see it in the trends in Wisconsin, which is that we have really low home ownership
rates for our workers under the age of 30.
On the rental side, of course, rents have gone up significantly 20 to 30 percent over
the last couple of years.
Add to that the crisis is that the cost of building anything new has gone up 40 percent
since the pandemic.
So it really is a perfect storm where you have rising prices, rising rents, and not
rising incomes at the same level.
So that middle-class families can't afford to buy a home.
First-time home buyers can't afford to buy a home.
And most lower-wage workers can't afford any decent rental housing anywhere near where
they want to live.
That is a crisis.
So the incoming Trump administration has argued that mass deportations will result in
more housing and drive down costs.
How accurate is that assessment?
Well, there's been a lot of research from Harvard and other universities that show that
the rise in housing prices really preceded the rise in immigration.
So the immigrants driving up house prices is not true.
On the other side, we have to recognize that the construction workforce is 20 to 30 percent
immigrants, and in particularly high-cost states like Texas or California, but also
here in Wisconsin, you have a significant shortage of workers in construction.
And a substantial portion of the workforce is immigrants.
So mass deportation, if it's actually carried out, would lead to a significant worsening
of the labor shortage in housing and construction, which would also tend to drive up house prices.
And of course, the big issue turns out to be whether tariffs are inflationary, and that
might lead the Federal Reserve to have to raise interest rates to try to reduce inflation,
which makes housing less affordable.
Tariffs also play into the supply of building materials.
Yes.
How so?
So one way to think about it for your listeners is about 50 to 60 percent of the cost of any
house is the materials and the labor that go into it.
So that's everything from gypsum board, drywall, lumber, steel, electrical appliances, electrical
transformers.
And then across the board, tariff would also raise housing prices because those are significant
inputs into housing construction.
Now we did see in the first Trump administration, tariffs on Canadian lumber, which the Biden
administration maintained.
And the estimates are that that adds 15 to 20,000 to the cost of a home.
But across the board, tariffs that would also affect cement and steel and all the components
that go in could also drive up housing prices.
Wouldn't the tariffs that have been talked about under the Trump administration be at
even higher rate than the existing one?
Yes.
So I've seen that the estimates are that he would put 10 to 25 percent across the board
tariffs, depending on whether it's Mexico or China.
And the truth is about 15 to 20 percent of the inputs into construction are imported
materials.
And again, that's everything from asphalt shingles to the drywall in your house.
So that's going to make it harder to build, more expensive to build.
And if it drives up inflation, again, the Federal Reserve is going to either increase
interest rates or be slower at reducing them, which affects the mortgage rates that people
can afford.
What federal programs targeting affordable housing might be on the chopping block?
So it's somewhat difficult to predict based on what they've said in Project 2025 and
their plans.
So it's important to understand there's two big kind of buckets of affordable housing
programs.
The first is on the production side, and that's the housing tax credit.
And we think that one's safe because that has strong bipartisan support.
In fact, we would love to see that strengthened and increased, but of course that's expensive
and it's going to compete with other priorities in the budget.
On the helping people to afford their home, the main demand side program is the Section
8 program for rental assistance.
And that covers the needs of about one in five of our lowest income households.
And in the Project 2025 documents, they have talked about adding work requirements and
time limits to these programs.
And for many of our working families at 30 or $40,000 of income and below, this housing
assistance is a vital lifeline.
And so if there are these significant cuts to HUD assisted housing, you can expect to
see homelessness and housing insecurity really increase.
On the flip side, could cutting regulations or taxes help home builders and offset the
kind of need for housing stock?
Possibly.
Right?
So whenever we talk about cutting regulations, we have to think about that there's a variety
of different types of regulations.
So on the one hand, if you think you want to build a house in a city in Wisconsin, and
if there's a minimum lot size that's 10,000 square feet and you cut that in half to 5,000
square feet, you can build more houses at a lower price.
You can amortize the infrastructure costs.
It's a regulation that really drives up the cost of housing, but doesn't really seem
to add much value in terms of public safety.
However, we also have regulations that stop you from building in a flood zone or in a
wildfire hazard zone, and reducing those types of regulations wouldn't necessarily make
housing more affordable because it introduces a lot of risk and then your insurance premiums
would go up.
So we have to think very carefully about what are the regulations that we want to reduce.
Now the truth is that local government land use regulations that kind of require you to
build a large house on a large lot, that's a significant contributor to house prices
going up.
So if we could find some way to incentivize local governments to approve more housing,
that would really help us on the supply side and on the price side.
But the incoming Trump administration has made clear that they don't want to use a kind
of top-down federal mandate on local governments to approve more housing.
So we're kind of going to be stuck as to which regulations we're actually reducing.
Does the incoming Trump administration kind of listen and understand the voice of the
experts like yourself and others around all these issues?
So I would put it differently, which is that even Red State governors and Red State mayors
recognize that they have a housing affordability crisis, they have tremendous portions of their
budget that come from the federal government, whether it's housing assistance or community
development block grants.
And so I think we can ask Red State mayors to be part of the voice to explain, to say
that listen, housing affordability, the housing crisis affects rural areas, urban areas, red
states, blue states.
And so we're kind of hoping that there's that bipartisan consensus that says, we have to
do something and we can't just cut our way to housing affordability.
All right.
Kurt Paulson, thanks very much.
Thanks for having me.
I mean, the truth is, right, that house prices are too high.
So if we want housing to be more affordable, we need house prices to go down.
But that means my value goes down.
And that's why people show up to public meetings and say, no, don't build anything
near me.
Right.
Oh, I know.
I know.
There was not even a low-income apartment building.
It was like moderate income, right?
And it was supposed to be built within the confines of the village of Sherwood Hills.
Yes.
No.
All those, you know, lefty liberals who vote in Sherwood Hills and they're going to
go in there, you know, two million dollar houses, yeah, voted it down.
Yeah.
And they claim to be environmentalists.
And yet they're forcing then all the workers who...