Neel Kashkari: Only the private sector, through increased housing supply, will be able to address the affordable housing crisis

Lack of affordable housing is a big and growing issue in most parts of the country. Local, state and federal governments have continued to expand subsidy programs that help low income individuals offset some housing costs. Spending has, however, not made a dent in alleviating the housing crisis.

It is easy to understand why this is. Housing prices are a result of the interaction between demand and supply. And society gets high prices when supply fails to keep up with demand. Subsidies do not deal with increasing supply, but they increase demand. Simply put, the best way to address the affordable housing crisis is to focus on addressing the lack of supply.

This is why I applaud the new direction the Fed is taking to possibly focus on the supply side. During the America’s Rental Housing Report Release, Neel Kashkari emphasized the need to incentivize the private sector to increase housing supply. Mr. Kashkari made the following points, among others, which I agree should drive housing policy;

  • Affordable housing affects not only very low income individuals but also  middle class workers.
  • There is simply not enough money in any of local, state or federal government budgets to scale subsidy programs to all individuals who need help in affording a place to live.
  • Only the private sector can move in and address the supply problem at a larger scale.
  • If the private sector builds more units, even market rate units, it adds to the supply to a region, which ends up creating space for everybody.