Barr: A Long-Term View on the Costs of Shelter

What happened

Governor Michael S. Barr delivered a speech titled "A Long-Term View on the Costs of Shelter" at "Housing Affordability 2026: A Community Development Summit," hosted by the Federal Reserve Bank of Chicago, Chicago, Illinois, according to the speech text.

According to Governor Michael S. Barr's remarks, he oversees the Federal Reserve Board's Division of Consumer and Community Affairs and participates in rate-setting decisions that affect the economy.

The Federal Reserve view of the economy

According to Governor Michael S. Barr's speech, the Federal Reserve has a dual mandate to achieve maximum employment and stable prices, and recent shocks have contributed to upward price pressures.

According to the speech, economic growth is strong and the labor market is solid, but inflation is above the 2 percent target and not clearly trending toward target in a timely way. According to the speech, the FOMC took important action last week by increasing the policy rate, which Governor Barr said he supported, and in his view further policy adjustments are likely to be needed to ensure inflation comes down to target in a timely fashion.

The costs of shelter now

According to Governor Michael S. Barr's speech, high rents and high home prices, relative to income and savings, have made shelter increasingly unaffordable for many Americans.

According to the speech, the Federal Reserve Bank of Atlanta's Home Ownership Affordability Monitor shows an affordability index value of 68 in July 2026, below the 100 threshold and the lowest in 21 years. According to the speech, real, constant-quality house prices are at a record high in many places around the country, and mortgage rates are high relative to the pre-pandemic level, which together put homeownership out of reach for many families.

According to Governor Barr's speech, about 20 percent of rental housing units rented for $1,000 or less a month in 2024, compared with 55 percent in 1980 (adjusted for inflation). According to the speech, about one-half of all renters are cost burdened, meaning they pay 30 percent or more of their income on rent, and about one-fourth of renters dedicate at least half of their income to rent.

According to the speech, on the income side, between 2000 and 2024 real median household income increased roughly 17 percent, while real U.S. house prices increased approximately 70 percent. According to the Federal Reserve's Report on the Economic Well-Being of U.S. Households, cited in the speech, 68 percent of prospective first-time buyers in 2024 said they could not afford a down payment. According to the speech, Fannie Mae found that affording the upfront costs of renting is a leading financial pain point when renting or moving into a new rental home.

Supply shortfall and a key driver

According to Governor Michael S. Barr's speech, a major force driving high home prices is a shortage of supply relative to demand, and housing production has remained below historical rates for many years.

According to the speech, estimates put the U.S. housing supply shortfall at roughly 2 million to 5.5 million units, against a U.S. housing stock of roughly 150 million units, implying a shortfall of approximately 1 percent to 4 percent of the total stock. According to the speech, while relatively small as a share of the nation's housing stock, the deficit can have an outsized effect on homeownership affordability because housing markets require a certain level of vacancy and available inventory to function efficiently.

According to Governor Barr's speech, one major factor driving the housing shortage is that land is finite and its development is heavily shaped by state and local government policies. According to the speech, the accumulation of local land use, zoning, permitting, and building regulations has shaped where housing can be built, how densely it can be developed, and what types of housing are permitted. According to the speech, land use regulations mandating lower density, such as single-family-home-only construction and minimum lot sizes, have become more widespread and can limit supply and support home price appreciation, and other local regulatory barriers, including processes for obtaining construction permits, have become stricter, adding to the time and expense of homebuilding.