Federal Reserve Governor Michael S. Barr delivered a speech on Sept. 23 at the "Housing Affordability 2026: A Community Development Summit" in Chicago, hosted by the Federal Reserve Bank of Chicago, outlining the structural forces keeping shelter costs high and warning that monetary policy must continue to address persistent price pressures.
Barr noted that inflation remains above the Federal Reserve's 2 percent target and cited a series of shocks over the past year and a half fueling upward price pressures: "the imposition of tariffs," the conflict in the Middle East, continued disruptions from Russia's war on Ukraine, and "a surge in investment demand to support the artificial intelligence (AI) buildout." He confirmed the FOMC raised the policy rate last week and said further adjustments are likely needed to bring inflation back to target.
On housing specifically, Barr pointed to the Atlanta Fed's Home Ownership Affordability Monitor, which uses a threshold of 100, with readings below that level indicating a median-income family cannot afford a median-priced home. The index fell sustainably below 100 during the pandemic and dropped to 68 in July 2026, its lowest reading in 21 years.
The affordability crisis has deep roots. Real U.S. house prices rose roughly 70 percent between 2000 and 2024, compared with a 17 percent gain in real median household income over the same period. Following the 2006 housing crash, homes became affordable again until the pandemic, but new construction never recovered. The number of homebuilders fell by half from 2007 to 2012, dropping from 98,000 to 49,000, and more than 30 percent of construction workers left the industry while another 25 percent either exited the labor force or turned to informal work. Since 1987, BLS data show little long-run growth in construction productivity, kept down by the sector's labor-intensive nature.
Input costs have surged in the pandemic era. The constant-quality price index for new single-family homes rose roughly 40 percent between 2020 and 2025. Rent prices have climbed steeply: the CPI for rent of primary residence was 34 percent higher in August 2026 than in December 2019, and shelter prices are currently rising at an annual rate of about 2 3/4 percent. Adjusting for inflation, $1,000 in rent in 1980 would equal roughly $3,500 today, yet only 20 percent of rental units now rent below that level, compared with 55 percent in 1980. About half of all renters are cost-burdened, spending 30 percent or more of income on rent, and one-quarter dedicate at least half their income to housing.
Supply constraints remain significant. The estimated U.S. housing shortfall ranges from 2 million to 5.5 million units—roughly 1 percent to 4 percent of the ~150 million-unit stock. Freddie Mac placed the gap at 3.7 million units as of Q3 2024; the National Association of REALTORS® estimated 5.5 million. A lock-in effect persists: about half of all mortgages still carry rates of 4 percent or lower, and nearly 80 percent are below 6 percent, discouraging existing owners from selling.
Barr also highlighted the role of the Community Reinvestment Act, enacted in 1977. CRA-related incentives supported over $430 billion in loans and investments for homeownership, small businesses, and affordable housing in 2024. The Low-Income Housing Tax Credit, meanwhile, creates an average of 110,000 affordable units per year, totaling roughly 4 million apartments since its enactment. On the demand side, 68 percent of prospective first-time buyers cited an inability to afford a down payment in 2024, according to the Fed's Report on the Economic Well-Being of U.S. Households.
