The housing affordability crisis and the silence of politics

CNBC reports that young voters in Pennsylvania's competitive congressional districts are being crushed by housing costs — and that, remarkably, they do not expect political candidates to help. One ought to resist the temptation to read this as mere disillusionment. It is, rather, a clear-eyed assessment: the supply of affordable housing has not kept pace with demand, wages have not kept pace with rents, and the political system has produced mostly rhetoric in response. The young voters are not wrong. The system has, in the precise sense of the term, failed to clear.

Let me state the macroeconomic diagnosis plainly. Housing is among the most interest-rate-sensitive investments in any modern economy. When monetary policy is tightened — as it has been, aggressively, in the years I cannot directly speak to but whose general shape I can infer from the CNBC account — residential construction slows, existing supply becomes more expensive to finance, and the burden falls disproportionately on those who have not yet accumulated assets. The young are, by definition, asset-poor. They face higher borrowing costs on lower incomes competing for a stock of housing that the private market has chronically under-built in desirable areas. This is not a mystery; it is the entirely predictable consequence of treating shelter as a financial instrument rather than a social necessity.

The classical response — that the market, left alone, will supply what is demanded — runs aground on the elementary fact that housing markets are local, illiquid, and encrusted with zoning restrictions that function as barriers to entry no competition law would tolerate in any other industry. (That last inference is mine, drawn from the broad pattern; I defer to current evidence on the local specifics of Pennsylvania.) What the private market will not voluntarily supply at a price ordinary workers can pay, the public sector has both the capacity and the duty to provide — through direct investment in social housing, through land value reform, through the removal of the regulatory thicket that keeps supply artificially scarce. This is not socialism; it is the ordinary application of aggregate-demand logic to a sector where private animal spirits have plainly retreated.

The deeper trouble is one of political economy, not economics alone. CNBC's report suggests that young voters have concluded that no candidate on offer will actually move the needle. Here we encounter what I would call the paradox of rational disengagement: the more that each individual voter reasons that political action is futile, the more futile political action becomes, and the more the field is left to those whose housing interests are already secured — namely, existing owners whose asset values depend on continued scarcity. The political economy of housing is almost perfectly designed to reproduce itself. Breaking that loop requires leaders willing to offend a well-organised incumbent constituency for the benefit of a disorganised future one. History suggests such leaders are rare, but not extinct.

What would actually help? I am cautious about engineering specifics I did not live to study, but the macroeconomic case is durable: public investment in housing supply, financed at government borrowing rates that will almost certainly be lower than the social cost of continued scarcity, is a high-multiplier use of fiscal capacity. It creates employment in construction, reduces the share of household income consumed by rent (freeing spending for goods and services), and — not incidentally — gives young people a material stake in the society they are being asked to sustain. The question is not whether the state can afford this. The question, as it was in the 1930s and as it remains today, is whether those who hold political power possess the imagination to see that the cost of inaction is larger than the cost of action.