Frederica Freyberg:
The housing crunch, especially for affordable housing, is at crisis levels according to experts. How might the incoming Trump administration help or hurt the need? We turn to UW-Madison professor of urban planning Kurt Paulsen, thanks for being here.

Kurt Paulsen:
Thanks for having me.

Frederica Freyberg:
So, what is the scope of the crisis in the housing system here in Wisconsin and nationally?

Kurt Paulsen:
So, Wisconsin mirrors a lot of the national trends, which is that home sales are down year over year since the pandemic started. That means there's just a lot less inventory for people to buy and prices are going up. When you combine prices going up with higher interest rates, it means that for your starter home, your first-time home buyer — Millennials, Gen Z, younger workers, or seniors who wanna move down to something smaller — there's just no product available and anything that's available is really expensive. And so, we see it in the trends in Wisconsin, which is that we have really low home ownership rates for our workers under the age of 30. On the rental side, of course, rents have gone up significantly 20% to 30% over the last couple of years. Add to that, the crisis is that the cost of building anything new has gone up 40% since the pandemic. So, it really is a perfect storm where you have rising prices, rising rents, and not rising incomes at the same level, so that middle-class families can't afford to buy a home, first-time home buyers can't afford to buy a home, and most lower wage workers can't afford any decent rental housing anywhere near where they want to live.

Frederica Freyberg:
That is a crisis.

Kurt Paulsen:
Yeah.

Frederica Freyberg:
So, the incoming Trump administration has argued that mass deportations will result in more housing and drive down costs. How accurate is that assessment?

Kurt Paulsen:
Well, there's been a lot of research from Harvard and other universities that show that the rise in housing prices really preceded the rise in immigration. So, the immigrants driving up house prices is not true. On the other side, we have to recognize that the construction workforce is 20% to 30% immigrants and in particularly high-cost states like Texas or California — but also here in Wisconsin, you have a significant shortage of workers in construction and a substantial portion of the workforce is immigrants. So, mass deportation, if it's actually carried out, would lead to a significant worsening of the labor shortage in housing and construction, which would also tend to drive up house prices. And, of course, the big issue turns out to be whether tariffs are inflationary and that might lead the Federal Reserve to have to raise interest rates to try to reduce inflation, which makes housing less affordable.

Frederica Freyberg:
Tariffs also play into the supply of building materials.

Kurt Paulsen:
Yes.

Frederica Freyberg:
How so?

Kurt Paulsen:
So, one way to think about it for your listeners is about 50% to 60% of the cost of any house is the materials and the labor that go into it. So, that's everything from gypsum board, drywall, lumber, steel, electrical appliances, electrical transformers — and then across the board tariff would also raise housing prices, because those are significant inputs into housing construction. Now, we did see in the first Trump administration tariffs on Canadian lumber, which the Biden administration maintained. And the estimates are that that adds $15,000 to $20,000 to the cost of a home. But across the board tariffs that would also affect cement and steel and all the components that go in could also drive up housing prices.

Frederica Freyberg:
Wouldn't the tariffs that have been talked about under the Trump administration be at an even higher rate than the existing ones?

Kurt Paulsen:
Yeah, so I've seen that the estimates are that he would put 10% to 25% across the board tariffs depending on whether it's Mexico or China. And the truth is about 15% to 20% of the inputs into construction are imported materials. And again, that's everything from asphalt shingles to the drywall in your house. So, that's gonna make it harder to build, more expensive to build, and if it drives up inflation, again the Federal Reserve is gonna either increase interest rates or be slower at reducing them, which affects the mortgage rates that people can afford.

Frederica Freyberg:
What federal programs targeting affordable housing might be on the chopping block.

Kurt Paulsen:
So, it's somewhat difficult to predict based on what they've said in Project 2025 and their plans. So, it's important to understand there's two big kind of buckets of affordable housing programs. The first is on the production side, and that's the housing tax credit. And we think that one's safe, 'cause that has strong bipartisan support. In fact, we would love to see that strengthened and increased. But, of course, that's expensive and it's going to compete with other priorities in the budget. On the helping people to afford their home, the main demand side program is the Section 8 program for rental assistance, and that covers the needs of about one in five of our lowest income households. And in the Project 2025 documents, they have talked about adding work requirements and time limits to these programs. And for many of our working families at $30,000 or $40,000 of income and below, this housing assistance is a vital lifeline. And so, if there are these significant cuts to HUD-assisted housing you can expect to see homelessness and housing insecurity really increase.

Frederica Freyberg:
On the flip side, could cutting regulations or taxes help home builders and offset the kind of need for housing stock?

Kurt Paulsen:
Possibly, right? So, whenever we talk about cutting regulations, we have to think about that there's a variety of different types of regulations. So, on the one hand, if you think you want to build a house in a city in Wisconsin and if there's a minimum lot size that's 10,000 square feet and you cut that in half to 5,000 square feet, you can build more houses at a lower price. You can amortize the infrastructure costs. That's a regulation that really drives up the cost of housing, but doesn't really seem to add much value in terms of public safety. However, we also have regulations that stop you from building in a flood zone or in a wildfire hazard zone. And reducing those types of regulations wouldn't necessarily make housing more affordable, because it introduces a lot of risk and then your insurance premiums would go up. So, we have to think very carefully about what are the regulations that we want to reduce. Now, the truth is that local government land use regulations that kind of require you to build a large house on a large lot, that's a significant contributor to house prices going up. So, if we could find some way to incentivize local governments to approve more housing, that would really help us on the supply side and on the price side. But the incoming Trump administration has made clear that they don't want to use a kind of top down federal mandate on local governments to approve more housing. So, we're kind of going to be stuck as to which regulations we're actually reducing.

Frederica Freyberg:
Does the incoming Trump administration kind of listen and understand the voice of the experts like yourself and others around all these issues?

Kurt Paulsen:
So, I would put it differently, which is that even red state governors and red state mayors recognize that they have a housing affordability crisis. They have tremendous portions of their budget that come from the federal government, whether it's housing assistance or community development block grants. And so, I think we can ask red state mayors to be part of the voice, to explain, to say that, "Listen, housing affordability, the housing crisis affects rural areas, urban areas, red states, blue states." And so, we're kind of hoping that there's that bipartisan consensus that says, we have to do something and we can't just cut our way to housing affordability.

Frederica Freyberg:
All right, Kurt Paulsen, thanks very much.

Kurt Paulsen:
Thanks for having me.