Americans who have been struggling to find affordable housing may have some relief on the horizon if the Biden administration has its way.

In a sign that America's housing affordability crisis has emerged as a potential election issue, President Joe Biden is launching a renewed push for a multipronged strategy that would potentially add 500,000 starter homes to under-resourced communities around the country in the next 10 years.

If he succeeds in getting the necessary funding from Congress, the additional housing would be welcome, but America's housing crisis has become such a widespread issue that 500,000 new starter homes would only be one small step toward fixing the issue of housing affordability. With that said, this kind of action at the national level could be a precursor to both the public and private sectors in America working together to solve the problem.

American Homebuyers Trapped In A Vise

According to the St. Louis Federal Reserve, the median home price in America is $417,700. Putting 3% down leaves a $405,169 loan to repay. A 6% mortgage on that amount is roughly $24,000 per year, which translates to $2,000 per month in interest alone. Borrowers with challenged credit will pay an even higher interest rate. Add that to the loan balance, and impounds (property taxes and insurance), and you end up with a monthly mortgage in the $4,000 range.

Based on current rent-to-income ratio guidelines, you would need to earn well over $100,000 per year to qualify for that mortgage. The U.S. Census Bureau has America's median annual household income pegged at around $745,800. The kicker is most $100,000 per year jobs are in major cities where average home prices are much higher than the national average. No wonder so many Americans feel stuck in a vise when it comes to housing.

The Broad Strokes Of Biden's Housing Plan

The Biden plan is not as simple as the government opening its wallet and building 500,000 new starter homes. The end goal of the program is to accomplish that goal through the application of numerous initiatives, some of which include:

  • Offering tax credits to build or remodel 125 million homes for low- and moderate-income buyers
  • Using the Housing Supply Fund to provide financing for the construction of 500,000 affordable housing units
  • Partnering with the private sector to address supply chain challenges and improve building techniques
  • Preventing institutional investors from buying large tranches of government-owned homes
  • Expanding access to financing for people looking to buy or build manufactured homes and accessory dwelling units
  • Giving jurisdictions that have affordable housing-friendly zoning and land-use reforms preference in receiving certain federal grants
The end goal of the program is to increase access to housing for Americans who are struggling with affordability, which the administration also hopes will serve to lower rents in the country's most challenged housing markets. One of the main kick-on effects of a lack of housing affordability for buyers is increased residency in rentals, which only serves to drive the price of rentals up and exacerbate the housing affordability crisis.

Will It Be Enough?

The Biden administration is looking to kill two birds with one stone. The hope is that by boosting affordable housing stock, it can also get residential rents under control. It's an admirable goal, but the question with this program is whether it is using a big enough stone. It's almost a certainty that more than 500,000 Americans need affordable housing.