Kurt Paulsen on the Housing Crisis and Trump's Policy Plans

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 want to 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 homebuyers 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 an 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 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.

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 because 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 1 in 5 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 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:
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.

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