Make housing affordable again

In a somewhat unexpected turn of events, affordability has become one of the dominant domestic political issues for voters in 2026. Certainly, it’s an albatross the Democrats will be keen to hang around the necks of the GOP as we head into the midterms.

Likewise, whoever may be to blame for it, the Trump administration has chosen to acknowledge that the affordability crisis is real, fixing its primary focus on one particular area: housing.

I view that combination—a major problem and an administration with a powerful motivation to show results—as making for an interesting setup and one worth analyzing.

The basic issue is that real estate price appreciation has far outpaced incomes. According to the Case-Shiller National Home Price Index, the average home price in the US has risen by more than 40% over five years and nearly 90% over 10. This comes at a time when steeper interest rates have increased the monthly payment on mortgage loans. That perfect storm—of high prices and high rates—has driven housing affordability to record lows.

Addressing the issue

What remedies and policies might the Trump administration adopt as it grapples with the affordability question ahead of the midterms? We see some possible options on the horizon:

Low-hanging fruit:

• Bring down long rates The post-Powell Fed is likely to re-launch Operation Twist, reducing holdings of Treasury bills and adding longer-term Treasurys, to lower the rates off which mortgages are priced. We’ve already seen a concerted effort on the part of the Treasury to limit longer-term debt issuance with this same objective in mind.
• Reduce mortgage spreads Even if we get long-term bond yields lower, the spread between them and 30-year mortgages has been relatively high since the Fed initiated its rate hiking cycle back in 2022, partly due to the sheer lack of volume in mortgage originations. One way of bringing them down would be to encourage the banks, together with housing agencies Fannie Mae and Freddie Mac, to buy mortgage-backed securities (MBS). Capital requirement changes for large banks are now in the works, and the housing agencies have recently boosted their MBS and home loan portfolios to their highest level since 2021, with more undoubtedly to come.
• Offer incentives to build more This would likely target starter homes (affordable housing) and could boost supply in the segment most shut out of the current market.
• Address zoning and permitting laws A major obstacle to construction and development in many areas is zoning. The Trump administration’s hands are mostly tied, since these rules are local rather than federal. But the bully pulpit can be powerful.

Beyond these likely measures, there are a number of more speculative approaches the Trump administration could pursue:

Stretch goals:  

• Quantitative easing (QE) The Fed just wrapped up its cycle of quantitative tightening and is already purchasing Treasury bills in the name of supporting short-term liquidity. While Operation Twist (see above) would involve offsetting purchases of longer-term notes with reduced holdings of short-term bills, QE would just flat-out buy the long bonds without the offset. The cry of hawks at the Fed would be loud.
• Develop federal land Uncle Sam owns 640 million acres of land in the US—might that help here? While it’s unclear to what extent available locations will work, this idea has been floated for a while and where there’s smoke there’s likely fire.
• Portable and assumable mortgages Imagine if mortgages were made portable (moving with the borrower) or assumable (transferrable to the buyer). This could have enormous potential to free up the still-frozen housing market. Unfortunately, it’s inconsistent with current contract law to modify the terms of those mortgages. But we know this administration is not bashful about pushing the legal envelope. Might this be a challenge they’d want to take on?
• Take the housing agencies public The effect could be huge if Fannie and Freddie were to exit their conservatorship, expand their balance sheet by issuing public equity, and buy even more MBS than they otherwise might. Alas, that’s a lot of steps (especially given the implicit government guarantee) and likely too many to be accomplished before November. Still, it’s worth considering longer term.
• Bringing nest eggs to bear Momentum has been building to give potential homebuyers the option of using penalty-free withdrawals from their retirement and college accounts to fund the purchase of a house. This would not help affordability, in fact it arguably would hurt it as demand for housing would likely increase, but it would assist new buyers in coming up with the downpayment.

Annual home sales have been mired in a Great Recession-like 4 million units a year for the past three years. A shift to a more typical 5 to 5.5 million units annually would provide a meaningful boost to growth, shifting housing from a net drag to a positive contributor to GDP.

Moreover, thanks to the multiplier effect, home sales drive activity across other areas of the economy (Consumer Discretionary, Durable Goods, Materials) as consumers buy furniture and equipment to suit their new surroundings. Critically for the administration’s hopes in November, such expenditure directly benefits the lower leg of the K-shaped economy at the epicenter of the affordability crisis.

The administration has the means, motive and attitude to get something done on housing, and, with the spring selling season in front of us and the midterms on the horizon, the time is now.