As the U.S. grapples with a housing shortage of 4 million homes as of mid-2023 according to the National Association of Realtors, President–elect Donald Trump has proposed a series of policies aimed at boosting construction and making housing more affordable. There has been a small increase in new homes being built this year – single-family housing starts grew to 1,027,000 in September, according to U.S. Census data, which was a 2.7% increase from August. However, experts caution that while some ideas might ease the supply crisis, others could inadvertently increase costs making housing less affordable.
Opening Up Federal Land for Housing Development; Interest Rates
During an August 2024 press conference, Trump vowed to open federal land for housing projects, aiming to address the severe affordability issues. However, federal lands tend to be located in rural areas. While these areas could benefit from new housing developments, they won’t address the housing crunch in major urban centers, where demand is highest. He also asserted that he would bring mortgage rates back to pre-pandemic lows, although a president does not unilaterally control interest rates. A reduction of the benchmark rate by the Federal Reserve, which has started to happen, could help to cause a reduction in interest rates, as the Federal Reserve cut the benchmark rate by 0.50% in September.
Regulation Cuts Could Lower Costs
One of Trump’s signature moves in his first term was an executive order which established a White House Council aimed at reducing barriers to affordable housing. As part of his 2024 campaign, he promised to slash regulations and permit requirements, which add to the cost of home construction. According to Jim Tobin, President and CEO of the National Association of Home Builders (NAHB), regulatory costs account for 24% of single-family home prices and 41% of the cost of a multi-family home, so reducing these could help lower housing costs significantly.
Labor Shortages and Immigration Policies
However, Trump’s stance on immigration, including mass deportations, could have unintended consequences for the housing market. Immigrant workers represent about 31% of the U.S. construction workforce, and disruptions in this labor pool could drive up wages and delay projects. Experts note that the construction industry already struggles to recruit native-born workers, as construction trades are not generally a popular career choice for young Americans, meaning fewer available workers could create a labor shortage. A shortage in workers could slow down construction, further exacerbating a housing shortage, and increase costs as workers could command higher wages due to a shortage of workers, which presumably would be passed onto home buyers in the form of higher home prices.
Tariffs Could Raise Building Costs
Trump has also proposed broad tariffs on imported goods, including building materials. A 10% to 20% tariff on materials like lumber could significantly raise the cost of new homes, as well as home renovations. While the U.S. is one of the leading lumber producers in the world, the U.S. was also the leading importer of lumber in the world in 2023 according to Forestry.com. It is helpful that lumber prices have fallen dramatically from pandemic highs. While tariffs might protect U.S. industries, the cost would ultimately be passed onto consumers, further driving up housing prices.
Conclusion
While Trump’s policies could encourage more construction, as Tobin believes that housing construction will be higher in 2025, the ripple effects on labor, materials, and urban development could offset the benefits. Experts agree that tackling the housing crisis requires a multifaceted approach, and it remains to be seen whether Trump’s proposals will provide the relief the market needs and/or create new challenges as well.
