Phil is correct to note that J. D. Vance’s explanation for housing costs makes no sense. Politicians have taken more notice of high housing costs in recent years, but understanding the federal government’s role in the housing market is vital to correcting policy errors.
In the United States, we have:
- Government mortgage insurance
- Government-backed mortgage securities
- Government-sponsored entities in housing finance (Fannie and Freddie)
Some developed countries have one of those three. Some have two. The U.S. is the only one that has all three. As Norbert Michel has written for the Cato Institute, “robust mortgage financing exists in virtually every developed nation of the world without the degree of government involvement found in the United States.”
Despite this constant intervention, the home-ownership rate in the United States is stubborn. Since 1965, it has been between 62.9 percent and 69.2 percent. Today it’s in the middle of that range, at 65.6 percent. The home-ownership rate steadily rose from 1994 to 2004 then steadily declined from 2004 to 2016, following its own cycle independent of economy-wide recessions. It is higher now than it was before Covid.
Home-ownership rates are higher in rural states that are supposedly left behind than in the urban states that are supposedly benefiting at their expense. In the first quarter of 2024, according to the Census Bureau, the ten states with the highest home-ownership rates are:
- West Virginia (79.4 percent)
- Maine (77.2 percent)
- Delaware (76.2 percent)
- Vermont (74.9 percent)
- Wyoming (74.1 percent)
- Alabama (73.9 percent)
- New Hampshire (73.4 percent)
- Mississippi (72.8 percent)
- Montana (72.1 percent)
- Minnesota (71.8 percent)
Regional victimization simply does not fit the home-ownership story. Vance instead told an immigration victimization story, saying that illegal immigrants compete with Americans for “precious housing.” As Phil noted, the numbers don’t really make sense for that claim, but, more fundamentally, housing should not be “precious.” Government needs to get out of the way of the expansion of the housing supply.
In his interview with Bloomberg, Donald Trump mentioned that housing regulations are driving up housing costs, which is absolutely correct. Zoning, environmental regulations, and labor rules all drive up costs. He didn’t mention lumber tariffs, which hurt as well. Deregulation domestically and the removal of trade barriers internationally would go a long way toward reducing housing costs.
People should be upset with the government for raising housing costs. Getting government out of the way must be part of the answer to lower them.