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Unaffordable housing is a drag on regional and national economies. In areas where housing costs are high, employers end up effectively transferring significant sums to landlords as the cost of attracting talent. But what will it take to fix this problem? Will market-based solutions suffice? If not, what kinds of interventions are necessary? Recent research shows that the market itself needs to be fixed. Any plan to overhaul the housing market needs to, first, confront the power of landlords to raise rents. Second, it requires rethinking public governance of housing markets behind simplistic prescriptions to just free the housing market from government regulation, assuming lower rents will follow. And third, it needs to provide more muscular government involvement in housing, through price regulation, more robust planning, and even direct public provision.
The United States is experiencing a serious housing crisis, and has been for a long time. Growth in rents continues to exceed overall price inflation. Mortgage rates have been at a multi-decade high due to the Federal Reserve’s aggressive rate hikes since summer 2022. Tens of millions of households spend more than 30% of their income on housing. Shelter is a basic human need and unaffordable housing is — and should be — a national scandal.