For years following the Great Recession, households faced a number of financial hurdles hindering their ability to buy a home. The three biggest were: a weak labor market that didn't give workers enough income to purchase a house; elevated levels of student loan debt; and high apartment rents that prevented prospective buyers from saving money for a down payment.
On all three fronts, the Biden administration should be a better environment for would-be homebuyers. Challenges over the next few years are more likely going to be related to inadequate housing supply than the kind of financial struggles households dealt with in the 2010's.
There are 1.9 trillion reasons to believe Joe Biden's administration will be better for workers than the past decade has been — that's the size (in dollars) of the fiscal relief package he's proposed. Getting the labor market to full employment is going to be a priority for Washington in a way we haven't seen in decades. And while that will depend in part on how quickly we can get Americans vaccinated, the proposed fiscal package would represent another infusion of cash to households in the form of direct checks, enhanced unemployment benefits and an expanded child tax credit.
For households that have remained gainfully employed over the past year, the added fiscal boost might mean the difference between having enough money for a down payment in 2021 rather than 2022. For workers who are unemployed, the extra unemployment benefits mean less need to draw down savings until the job market rebounds.
And the announced fiscal relief package is only the first of two economic plans the Biden administration intends to pass. The second, coming later in the year, will focus on infrastructure and clean energy with potentially another multi-trillion dollars in spending. Thanks to vaccines and fiscal packages with benefits that go primarily to households and workers, we're much less likely to see inadequate incomes and savings as an impediment to the housing market over the next few years.
Addressing student-loan debt is another priority of the Biden administration, made more likely thanks to the Georgia Senate runoffs delivering control of the Senate to Democrats. While it remains unclear whether this approach would involve lightening loan obligations through executive action or legislation, the Biden administration has talked about canceling up to $10,000 of student debt per person. That, in turn, could get college graduates into the homebuying process sooner than they otherwise would have.
Shifts in the housing market that we've seen since the onset of the pandemic could be just the beginning if a stronger labor market and action on student loans turns more renters into homeowners. That shift — including a rising apartment vacancy rate and strong demand for home buying as renters have sought out more space and backyards during the pandemic — has led to plunging rents in cities like New York and San Francisco as landlords try to lure tenants with lower prices. But moving farther from city employment centers has been possible mainly for well-off people with jobs that are easy to do remotely — a small subset of all renters.
Biden's approach to fiscal policy, combined with the impact of mass vaccinations and the labor market getting back to normal, should expand the universe of households for whom buying a home is an option. As middle-class renters take advantage of their improved financial position to buy, there should be downward pressure on more corners of the apartment rental market, leading to lower rents. And that has the added benefit of allowing tenants to save more money every month, which can eventually be used for a down payment and a mortgage.
The challenge for would-be homebuyers is likely to switch from inadequate income and savings and high levels of student debt to a lack of inventory of homes for sale, and high prices for the houses that are on the market. Prices probably grew by around 10% in 2020 and show no signs of letting up in 2021. Homebuilders have noted that the US underbuilt housing for a decade and it will take time to ramp up construction to meet demand. In many metro areas, regulations and local politics remain an obstacle to increasing the supply of housing.
The good news is that we've been seeing big companies and employers expand their geographic footprints beyond high-cost coastal hubs in an effort to gain access to talent and lower their costs. The pandemic accelerated that transition and got companies more comfortable with remote work. So the new challenges of high housing prices and lack of inventory should at least be partially offset for homebuyers by increased flexibility among employers.
Bloomberg
