How administration priorities could shape future
While there is no silver bullet to solve the home ownership problem, several policies and actions could directly impact home ownership affordability. Below we explore the potential benefits and challenges of five key points from the Trump administration’s campaign agenda related to the housing market:
1. Deregulation
Policies that reduce barriers for homebuilders in markets with significant affordability challenges can benefit not only the builders, but also homebuyers and the communities where they live. The latest study from the NAHB indicates approximately $93,870 of the average sales price is attributable to regulation.⁶ Reducing these regulatory costs within federal agencies, such as the U.S. Department of Housing and Urban Development (HUD) and the U.S. Environmental Protection Agency (EPA), could lower the burdens associated with permitting and compliance, foster innovation in housing products, and spur new housing starts.
However, meaningful change also requires deregulation at the state and local levels. President Trump proposed releasing federal land for residential construction, primarily located in the western US. While this could elevate supply, significant infrastructure investments in roads, sewage and schools would be necessary to make these areas habitable and desirable. Public-private partnerships between local governments and homebuilders could enhance the residential experience through strategic development, addressing the “not in my backyard” mentality that often hinders progress.
2. Macroeconomic and rate environment
Favorable macroeconomic and lending conditions could benefit both homebuyers and homebuilders. If the Federal Reserve implements additional rate cuts, it would lower mortgage costs for homebuyers and capital costs for homebuilders. Additionally, homeowners who have stayed in place due to the “lock-in effect,” whereby a homeowner’s low mortgage rate disincentivizes moving, might enter the market in a lower interest rate environment. While an increase in resale inventory does not necessarily translate into additional supply, it can help the supply of more affordable housing as these homeowners presumably move up in their next home purchase.
EY-Parthenon Chief Economist Gregory Daco cautions that the Fed will likely slow the monetary policy recalibration process in 2025 as it navigates upside risks to inflation. The EY-Parthenon Macroeconomics team expects a 25bps rate cut at every other meeting through Q3 2025, for a total of 75bps of easing this year.
3. Tariffs
The new administration’s proposed tariffs, including 10%–20% on all imports and up to 60% on goods from China, could significantly impact the homebuilding sector.⁷ Homebuilders rely on imported building materials such as cement, steel, lumber, fixtures and appliances. Daco noted that sweeping tariffs could reduce US real GDP by 1.2% in 2025 while raising inflation by 1.0 percentage point by Q4 2025. The question remains whether these tariffs will be enacted as described or if they are a negotiation tactic.
4. Immigration and labor supply
Immigrants account for a significant portion of the residential construction workforce (31%), with even higher shares in key trades like plastering (64%), drywall installation (52%) and roofing (47%).⁸
The composition of the construction workforce varies by state, and the nature of construction’s subcontracting structure allows many workers to be paid as independent contractors. For example, immigrants make up 63% of New York City’s construction workforce, with an estimated 40% of these workers being undocumented. Similarly, in Texas, approximately 400,000 workers, or about half of the construction workforce, are undocumented. This high number is facilitated by the construction industry’s extensive subcontracting system, which enables many workers to be compensated as independent contractors in cash rather than as formal employees.⁹
Deportation of undocumented workers could exacerbate the existing labor shortage, although the rate of legal immigration will likely be a more determinative factor in the availability and cost of labor. Immigration and labor supply will be important to track as they have a direct impact on construction cycle times and the number of homes built annually.
5. Taxes
With a GOP majority in the Senate and House, the new administration is evaluating tax reforms that could benefit taxpayers. There are a number of provisions within the Tax Cuts and Jobs Act (TCJA) that will expire at the end of 2025 which could impact individual taxpayers and small businesses in various ways if no extensions are enacted. These expiring provisions will serve as a primary catalyst for tax legislation in the new 119th Congress.
With that said, the new administration has proposed to restore the full state and local tax (SALT) deduction that was capped by the TCJA and currently expires at the end of 2025. This would allow homeowners to once again fully deduct their state and local income and property taxes, though it is most likely that Congress will enact a modified SALT deduction cap to take effect beginning in 2026. The TCJA also reduced the mortgage interest deduction limit from the first $1 million of mortgage debt to $750,000 and eliminated the ability to deduct interest on home equity indebtedness. These limitations also expire at the end of 2025, unless Congress extends them.
Beyond the expiration of the TCJA provisions, there has been strong bipartisan interest in tax incentives that would promote housing affordability and supply. In addition, a variety of legislative proposals have emerged from both Congress and the outgoing Biden administration which could be included in legislation to extend the expiring TCJA provisions.
Tax legislation is a key priority for both Congress and the new administration, so interested parties will want to stay abreast as to what is extended and for how long. Tax reform or the lack thereof could impact homebuyer affordability, and have varying ramifications on the cost of doing business for homebuilders.
To make home ownership more attainable, the new administration could consider tax incentives or reduce capital gains taxes to encourage the sale of investment properties. This would increase the housing supply, making more homes available for purchase. The new administration could also consider tax incentives to motivate homebuilders to build or consumers to purchase multigenerational homes or homes designed to enable co-inhabited living.
Those with a stake in the housing industry are eager to see how the new administration’s policies will help or hinder residential housing affordability. It will take various initiatives within all levels of government to reduce the regulations that make it costly and time consuming to develop residential real estate, as well as efforts made by public and private homebuilders alike. Change can be implemented, and now is the time to shape policies and initiatives that will have a meaningful impact on the affordability challenges within the US residential housing market.
Navigating a path forward
Homebuilders have proven to be resilient and agile in their efforts to solve problems that impact the home buying market. They have an advantage over existing home sellers in that they are able to offer homebuyers mortgage rate incentives via their mortgage subsidiaries and joint ventures, which reduces the overall cost of purchasing a home.
Reducing the square footage of floor plans is another tactic homebuilders are implementing to make homes more affordable. New privately owned single-family homes in the US decreased in both median and average square feet in each year from 2021 to 2023, according to the Q3 Census Quarterly Starts and Completions by Purpose and Design data. The trend continued in the third quarter of 2024.¹⁰
Here are some additional steps taken by homebuilders to mitigate the problem:
- Building for multigenerational families: Many homebuilders have increased the proportion of homes with more than one primary bedroom, kitchen and living space to accommodate multigenerational families. This will increase density reducing supply challenges and also enables the homeowner to rent a portion of the house or affordable dwelling unit which helps with the affordability side of the equation.
- Boosting talent training and retention: Homebuilders have been working with organizations like the Building Talent Foundation, whose purpose is to address the severe and persistent labor shortages across skilled trades by improving talent supply, training and retention. Construction has a historically high turnover rate and a low proportion of women. Promoting residential construction careers through early education, development programs and upskilling can boost productivity and quality and reduce turnover. Training and educating tradespeople early will benefit the entire construction sector significantly.
- Innovation and sustainability: Homebuilders are investing in a myriad of innovative companies and building techniques to reduce the cost of residential construction and improve cycle times. They are also considering how sustainable building techniques and materials as well as predictive smart home features can mitigate the risk of insurance claims which has the potential to reduce the cost of homeowners’ insurance.
The ability to increase the supply of lower-priced homes in the market is essential to solving the challenge of affordability.
The next generation of housing
As home ownership has become more expensive, both institutional and individual investors have amassed 14.3 million attached and detached residential rental properties across the US as of 2024. The role of the investor in residential real estate transactions has more than doubled since 2002 with investors purchasing 25% of all homes sold.¹¹
Younger generations in the US, particularly Millennials and Gen Z, are increasingly favoring renting over owning. This shift is driven in part by affordability challenges stemming from lower relative incomes and higher costs as well as higher student debt levels. As a result, renting has become more affordable compared to buying, leading builders to develop build-to-rent (BTR) communities. These communities offer the perks of single-family homes along with luxurious amenities found in high-end multifamily developments.
In response to affordability concerns, BTR developers have started to introduce more townhouse options. BTR communities present a more affordable, long-term renting solution for those who are priced out of the home buying market. Delivery of new traditional multifamily rental inventory will keep rent growth muted; however, while more affordable on a relative basis, rental costs have also continued to increase, putting pressure on renters’ ability to save for a down payment and break through the rental barrier to home ownership.
By thoughtfully considering these and other market trends and implementing targeted solutions, the goal is to work toward a more balanced housing market that provides viable paths to home ownership for a greater number of people.
