WASHINGTON, D.C. — The United States is short at least 4 million homes, a deficit that has pushed ownership further out of reach, raised rents for millions of households and helped reshape the housing market in ways that increasingly favor older and wealthier Americans. But according to a recent New York Times guest essay, part of the solution may lie not in creating a new federal program, but in reforming one that already exists.
Economist Chris Hughes, author of Marketcrafters: The 100-Year Struggle to Shape the American Economy, argues that the housing shortage is the result of years of underbuilding combined with institutional drift inside the Federal Home Loan Bank System, a Depression-era network originally created to support mortgage lending and homeownership.
Today, he writes, that system largely benefits major financial institutions rather than directly addressing housing affordability.
“America is short at least four million homes,” Hughes writes. “The typical first-time buyer is 40 years old, a decade older than in 2010. That leaves a lot of younger renters, many of whom pay more than 30 percent of their income for housing. The rate of new housing construction has stagnated; and without new homes, prices will only continue to rise.”
That shortage did not emerge overnight. It reflects years in which housing production failed to keep pace with population growth, household formation and demand in high-opportunity regions. The result has been a squeeze felt across the market: rising rents, delayed homeownership, overcrowding and increasing geographic inequality as many workers and families are priced out of areas with strong job markets.
Hughes contends that one of the clearest examples of policy failure is the evolution of the Federal Home Loan Bank System, or FHLB. Congress chartered the system in 1932 during the Great Depression to funnel credit to local savings and loan institutions and expand access to mortgages when private markets were failing.
“For decades, that’s what the system did,” Hughes writes. “Today, though, it specializes in providing cheap funding for the country’s largest financial institutions. Only 10 percent of its net income goes to the mission it was intended to serve. That needs to change. The system should be rechartered to help make housing more affordable.”
In Hughes’ telling, the shift happened gradually after the savings-and-loan crisis of the 1980s. As the traditional thrift sector collapsed, lawmakers expanded FHLB membership to commercial banks, insurance companies and other institutions. The system found a new role as a low-cost wholesale lender to large financial firms, even when those firms were only loosely connected to housing finance.
“How did the system’s member banks lose their way? Institutional drift,” Hughes writes. “The savings and loans sector collapsed in the 1980s as a result of record-high interest rates and irresponsible deregulation.”
He adds that “today, more than 40 percent of all F.H.L.B. institutions do not even give out mortgages.”
If a publicly chartered institution receives substantial advantages because of federal backing, Hughes argues, it should deliver measurable public benefits in return. Instead, he says, much of the system’s value now flows back to member institutions through favorable borrowing and dividends.
“Large banks and insurers borrow from the F.H.L.B.s at rates just above short-term Treasury rates and invest the proceeds at higher yields,” he writes. “That’s a very profitable trade.”
He notes that in 2024, the FHLBs paid about half of their $6.4 billion income in dividends to banking members while setting aside just $850 million for affordable housing. “13 cents of every dollar they earned” went to that purpose, he writes.
Hughes focuses especially on one neglected segment of the housing market: midsize multifamily buildings often known as the “missing middle.”
These projects, generally between five and 50 units, can fit into neighborhoods more easily than towers, while producing more homes than single-family lots. Yet they are often difficult to finance because they are too large for conventional home mortgages and too small to attract major high-rise developers.
“While single-family homes and luxury high-rises continue to be built, medium-size multifamily condominiums of five to 50 units are so rare that housing experts have come to refer to them as the ‘missing middle,’” Hughes writes.
His proposal would require the FHLBs to dedicate 25 percent of their overall lending — about $175 billion — to below-market construction loans for multifamily housing. With a five-year phase-in period, he estimates the system could help finance about 200,000 new homes annually, including tens of thousands priced below market rate.
“The F.H.L.B.s should have to dedicate 25 percent of their overall lending, about $175 billion, to direct, below-market construction loans for multifamily housing,” Hughes writes.
He estimates that if average construction costs are $300,000 per unit, that lending “would produce roughly 194,000 new multifamily units a year — doubling the number of units completed annually in missing middle buildings.”
The affordability component is central to the plan. Hughes argues that projects receiving FHLB financing should reserve at least 20 percent of units for buyers earning less than 80 percent of area median income, using market-rate units to support overall project viability.
“Any project that gets F.H.L.B. financing should be required to set aside at least 20 percent of its units for buyers who earn less than 80 percent of the area’s median income,” he writes.
He also argues that mixed-income developments can avoid the concentrated poverty patterns associated with some past low-income housing models while expanding production in walkable communities.
Another reason Hughes sees the proposal as politically viable is cost.
Because the FHLB system already exists and already benefits from an implicit federal guarantee, he says reform would not require creating a new bureaucracy or appropriating large sums of taxpayer money.
“This banking reform does not require dismantling anything,” Hughes writes. “The 11 regional banks would keep their structure, their cooperative ownership and their capital markets funding.”
He argues the real challenge is not technical feasibility but political will.
Housing debates often stall when they require major new spending or direct fights over local zoning and neighborhood opposition. By contrast, he says, reorienting an old institution toward its original mission could attract bipartisan support.
“In a period of extreme partisan gridlock, it may seem naïve to expect Congress to do anything,” Hughes writes. But he notes that the housing bill now under consideration in Congress passed the Senate 89-10 with support from lawmakers across the ideological spectrum.
The central thesis here is that the 4 million-home shortage is not simply the result of market forces, but also the product of policy choices about what gets built, who gets financed and whether public institutions still serve public purposes.
Hughes’ argument is that solving the crisis may require not just building more homes, but rebuilding the systems meant to make housing possible in the first place.
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There is no housing shortage. This is a myth created by interests which benefit from claiming there is one.
Michael Burry, the investor renowned for his prescient bet against the U.S. housing market before the 2008 financial crisis, has publicly challenged the conventional narrative that America faces a housing shortage.
Burry argued the United States already leads the world in residential square footage per capita — a metric he believes fundamentally undercuts the shortage framing that dominates policy discussions.
Burry’s argument traces the roots of the current dysfunction to the pandemic era, when ultra-low interest rates, combined with over $6 trillion in stimulus-style cash and forgivable loans, altered the housing market.
According to the famed investor, these artificially suppressed borrowing costs effectively froze households in place, creating a “lock-in effect” where empty nesters are reluctant to sell, and first-time buyers are boxed out.
Plus, the shift to “remote work” pushed more economic activity into the home and enabled higher-income workers to relocate away from traditional job centers, further distorting price dynamics in secondary markets.
These figures suggest a market increasingly dominated by wealth rather than credit, which makes conventional affordability solutions like building new supply less effective at reaching the households most in need.
https://finance.yahoo.com/economy/policy/articles/no-housing-shortage-legendary-investor-133712457.html#:~:text=Plus%2C%20the%20shift%20to%20%E2%80%9Cremote%20work%E2%80%9D%20pushed%20more%20economic%20activity%20into%20the%20home%20and%20enabled%20higher%2Dincome%20workers%20to%20relocate%20away%20from%20traditional%20job%20centers%2C%20further%20distorting%20price%20dynamics%20in%20secondary%20markets.
https://finance.yahoo.com/economy/policy/articles/no-housing-shortage-legendary-investor-133712457.html
Why do you keep citing minority views in the industry as though they were definitive?
The problem is that the “majority views” are corrupted. Normally, a publication such as yours would look into this further (such as who is funding the YIMBYs). The type of issue that a publication like 48 Hills might look into, for example. Or even 60 Minutes, in the old days.
“How did such a powerful consensus come together? As the saying goes, follow the money. Government subsidies and tax breaks for housing construction makes real estate developers fabulously wealthy. Banks, realtors, and corporate builders prosper from new construction, too. These industries’ fingerprints are all over the reams of reports and articles claiming that we must build our way out of the housing crisis. As Politico reported in November, “Lobbyists are scrambling to get help from Washington to goose the housing market.”
Maybe we should listen instead to the housing experts whose bank accounts don’t get a boost every time a crane goes up. Take Alex Schwartz and Kirk McClure. Schwartz, a professor at the New School, literally wrote the book on U.S. housing, Housing Policy in the United States, now in its fourth edition from Routledge Press. McClure is professor emeritus in urban planning at the University of Kansas. Like Schwartz, he is a widely-published, highly-decorated expert on housing markets.
In a recent Barron’s article, Schwartz and McClure decided to look past the housing-supply hype and crunch the numbers. Those numbers show that 21st century housing construction has produced a surplus of 3.5 million units, including a surplus in virtually every metropolitan area. New York, for example, has a quarter-million more units than are needed to house its population.”
https://www.commondreams.org/opinion/affordable-housing-crisis
“The problem is that the “majority views” are corrupted. ”
That doesn’t make for honest discourse.
That’s why I posted two articles – one of which specifically calls out the interests behind this.
Ever notice how the interests which claim there’s a housing shortage never actually demonstrate how they came up with their numbers (which already vary wildly)? As you yourself once acknowledged, part of what they’re basing those numbers on is from unsustainable historic patterns (which no longer apply in a country with 1.6 kids per couple, and a reversal of immigration).
Also, as your author Matt Stone recently noted, “you might be a conservative if you believe in endless growth”. (I took the liberty of wording this as Jeff Foxworthy might do.) It’s unfortunate that you’ve gone over to the “dark side” regarding that, while remaining on an even darker side regarding every other issue.
“The housing crisis exists because of corruption” thesis is too simple and too narrow an explanation for a problem driven by many interacting forces. Housing shortages, rising rents, stagnant wages, construction costs, restrictive land-use rules, and decades of underbuilding all play major roles that cannot be reduced to corruption alone.
A “housing crisis” is not the same thing as a “housing shortage”.
It’s really a difference in wealth (and is not limited to housing). If you want to change that, change the laws regarding inheritance. (Biden attempted to do so, but I “suspect” that Trump is not a fan of that idea.)
I read somewhere that a significant percentage of Americans can’t afford a $500 emergency (something like that). And that credit card debt (not to mention student loan debt) is skyrocketing. (Just looked it up, and appears that credit card debt is close to $1.3 trillion dollars. I don’t even know what a “trillion” is, exactly – though I’m sure I could look that up too.)
And that a lot of car payments are now around $1,000/month.
Also, the difference in wealth is the reason that local incomes don’t matter that much (not just in Davis).
Pretty sure that a barista or ski resort worker in Jackson Hole is going to have trouble making it. (Though I have a friend who rented a cabin there decades years ago, and was able to make it on his “oil search crew” job. Then again, I think the dynamite they used to blast hillsides damaged his hearing.)
Nowadays, those just starting out (with no other money) would do better in the places which aren’t yet expensive (and may never be).
I’ve posted a response by a UC law professor to the serious flaws in the Schwartz & McClure study.
You’re not reading the articles I post. Many of them quantify the housing shortage and the impact on the housing crisis.
Do you have proof in your unsubstantiated assertion that the housing experts you question get a boost in their bank accounts from the outcome of their studies? That’s a pretty serious charge.
I’ve pointed out a whole bunch of falls in that study and Ron doesn’t want to listen
Oh, I listen.
And so far, there hasn’t even been a discussion regarding how the fake housing shortage numbers were determined.
“Hughes focuses especially on one neglected segment of the housing market: midsize multifamily buildings often known as the “missing middle.” ”
And if you look at the proposals for Village Farms and Willowgrove, you will see that they are NOT supplying this missing middle housing. Willowgrove has NO market-rate multifamily housing whatsoever! This is why these projects won’t really solve Davis’ housing crisis and they should be rejected. They have the wrong answer to the right question.
The “middle” of what, exactly?
If it’s the middle of Atherton, it’s those who can afford an $8 million dollar average house price. (Since that’s the average, it’s essentially “the middle”.)
Income doesn’t matter anymore – it’s accumulated wealth that does (as noted in one of the articles I posted, as well).
Those are the people that the poor schmucks are competing against. (Though truth be told, I’ve never heard from any of them on this blog, at least. My theory is that they’re in the same category as the Easter Bunny. Either that, or they’re not wasting their time waiting for housing prices to come down, before making some other decision.
But if you want to change wealth, then change the laws regarding inheritance. Biden attempted to do so but failed.
Of course, that means that “your” kids (for example) might then be on the same playing field as everyone else.