Federal Reserve Governor Michael S. Barr said housing has become increasingly unaffordable for many Americans because home prices and rents have risen faster than household incomes and savings, while housing construction has remained below historical levels.

Barr made the remarks in a September 23, 2026, 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 in Chicago, Illinois. Barr said the views expressed were his own and not necessarily those of his colleagues on the Federal Open Market Committee (FOMC) or the Federal Reserve Board.

Economic outlook and monetary policy

Barr said his interest in access to affordable housing spans several decades. He has worked on housing and mortgage-market reform and promoted access to credit for low- and moderate-income (LMI) households. He cited public-private partnerships in the South Bronx, the South Side of Chicago, the Mississippi Delta, South Central Los Angeles and other low-income communities as examples of efforts to improve affordable housing.

At the Federal Reserve Board, Barr oversees the Division of Consumer and Community Affairs and participates in rate-setting decisions that affect the economy. He said the Federal Reserve’s pursuit of maximum employment and stable prices is intended to create a stable macroeconomic environment in which households can maintain purchasing power, earn reliable incomes, access housing and build capital through homeownership and other forms of investment.

The Federal Reserve’s dual mandate is to achieve maximum employment and stable prices, Barr said. The economy has experienced several shocks over the past year and a half, including the imposition of tariffs, the conflict in the Middle East, continued disruptions from Russia’s war on Ukraine and, more recently, a surge in investment demand to support the artificial intelligence (AI) buildout. Those shocks have contributed to upward price pressures.

Barr said economic growth was strong and the labor market solid, but inflation remained above the Federal Reserve’s 2 percent target and was not clearly moving toward that target in a timely way. Risks to achieving the inflation target had increased, while labor-market risks had receded, he said.

The FOMC therefore needed to recalibrate monetary policy to reflect the balance of risks to its mandate goals, according to Barr. He said the FOMC increased the policy rate the previous week, an action he supported. In his view, changes in the economy had left monetary policy out of position, and the adjustment moved policy in the right direction.

“In my base case, further policy adjustments are likely to be needed to ensure inflation comes down to target in a timely fashion,” Barr said. He added that sustainable, durable growth supports maximum employment and that price stability is crucial to achieving that objective.

Homeownership and rental affordability

Barr said high rents and home prices relative to income and savings had made shelter increasingly unaffordable for many Americans for several years.

The Federal Reserve Bank of Atlanta’s Home Ownership Affordability Monitor includes an affordability index in which a value of 100 or above indicates that a median-income family could afford a median-priced home, while a value below 100 indicates that it could not afford such a home at the current mortgage rate.

According to the monitor, homes were on average affordable after the 2006 housing-price crash until the COVID-19 pandemic. The affordability index then fell sustainably below 100 and declined to 68 in July 2026, its lowest level in 21 years. Real, constant-quality house prices were at record highs in many parts of the country, Barr said.

Mortgage rates were also high relative to their pre-pandemic level. Barr said the combination of high prices and high rates had put homeownership out of reach for many families. The Federal Reserve’s short-term policy rates affect longer-term borrowing rates, including mortgage rates, although many other factors also influence mortgages. Mortgage rates are generally lower when inflation is lower, he said, adding that the Federal Reserve was working toward that objective through its mandate to foster maximum employment and stable prices.

Rental affordability has also become a problem. About 20 percent of rental housing units rented for $1,000 or less per month in 2024. In 1980, after adjusting for inflation, 55 percent of rental units rented for the equivalent of that amount. The figure includes the U.S. Census rental housing stock, meaning units that were renter-occupied or available for rent.

About one-half of all renters are now cost burdened, meaning they spend at least 30 percent of their income on rent, while about one-fourth of renters spend at least half of their income on rent. Barr acknowledged that, on a quality-adjusted basis, rent increases track improvements in housing quality and amenities, but said that offered little comfort to people unable to afford the resulting rent burden.

Inflation-adjusted household incomes have risen much more slowly than home prices over the past two decades. Between 2000 and 2024, real median household income increased by roughly 17 percent, while real U.S. house prices rose approximately 70 percent.

Slower income growth has made it more difficult for households to accumulate the cash needed for the upfront costs of buying or renting a home. According to the Federal Reserve’s Report on the Economic Well-Being of U.S. Households, 68 percent of prospective first-time buyers in 2024 said they could not afford a down payment.

Renters face similar cash-flow barriers when moving into a new home. Upfront costs can include the first month’s rent, a security deposit, application fees and, in some cases, the last month’s rent. Fannie Mae research identified the cost of these upfront expenses as a leading financial pain point for people renting or moving into a new rental home.

Housing supply and home prices

Barr said a major force behind high home prices was a shortage of housing supply relative to demand. Housing production has remained below historical levels for many years.

Estimates of the U.S. housing shortfall range from roughly 2 million to 5.5 million units, depending on the methodology and regional differences. Against a U.S. housing stock of approximately 150 million units, the estimates represent a shortfall of about 1 percent to 4 percent of the total stock.

Although the deficit is relatively small as a share of the nation’s housing stock, Barr said it could have an outsized effect on affordability because housing markets need a certain level of vacancy and available inventory to function efficiently. Freddie Mac estimated a 3.7 million-unit shortage as of the third quarter of 2024, while the National Association of REALTORS® estimated a 5.5 million-unit shortage.

Barr identified four major factors behind the housing shortage.

Local regulation and land-use restrictions

Land is finite, and its development is heavily shaped by state and local government policies. Over several decades, local land-use, zoning, permitting and building regulations have influenced where housing can be built, how densely it can be developed and which types of housing are permitted.

Regulations requiring lower density, including single-family-home-only construction and minimum lot sizes, have become more widespread, particularly in suburban areas. Barr said those rules limit supply and support home-price appreciation, potentially worsening shortages and increasing prices around urban centers.

Other local regulatory barriers, including construction-permit processes, have become stricter, increasing the time and expense of homebuilding and, at the margin, likely limiting supply. Because many rules are applied locally, variations among jurisdictions have also increased, limiting developers’ economies of scale.

Barr said land-use regulation involves benefits, including attention to school capacity and infrastructure investment, as well as costs. One likely cost is higher home prices that make homeownership less affordable for new buyers.

Low construction activity has become more widespread and is no longer confined to historically difficult-to-build cities such as New York, San Francisco, Boston and Washington, D.C. Land-use and other regulatory restrictions have also contributed to slower construction in traditionally high-growth Sunbelt markets such as Atlanta, Phoenix and Miami. Barr said decades of rapid growth and change in those markets had led communities to try to slow development.

Construction productivity

The second factor is the construction sector’s lower rate of productivity growth relative to other parts of the economy. Bureau of Labor Statistics data show that construction productivity, including home construction, has recorded no long-run growth since 1987.

Weaker productivity growth translates into higher costs, all else equal. It puts pressure on profit margins and makes it more difficult to build affordable homes. Barr said the lower productivity growth rate may be related to construction’s labor-intensive nature.

Physical processes such as pouring foundations, framing walls, installing structural systems and finishing interiors cannot, for example, be replaced by machines or AI, “at least not yet,” Barr said. Construction has adopted technologies including computer-aided design, building information modeling and digital project management, but those tools often improve coordination and information management without fundamentally changing how homes are physically built. Technological evolution could create opportunities for construction improvements that have not yet been realized.

The housing bust and Great Recession

The third factor was the damage to the homebuilding business caused by the bursting of the housing bubble and the Great Recession nearly two decades ago. Home construction recovered slowly, particularly in markets that experienced severe housing-price busts.

From 2007 through 2012, the number of new homebuilders fell by half, from 98,000 to 49,000. More than 30 percent of construction workers left the industry after the housing bust, while another 25 percent either left the labor force or moved into informal work. Barr described the resulting loss of skills and manpower as generational and said it likely affected homebuilding for years.

Pandemic demand and higher input costs

The fourth factor was the increase in home prices associated with the COVID-19 crisis and inflation. Increased housing demand linked to working from home and pandemic distancing, combined with supply constraints for building materials and labor, led to a significant rise in the cost of inputs used in housing production after the pandemic.

The cost of materials and other goods used to build homes rose sharply after 2020. According to the Census Bureau, the constant-quality price index for new single-family homes increased by roughly 40 percent between 2020 and 2025. The index measures changes in the cost of building a new single-family home while holding size and features constant, so that the change reflects construction costs rather than changes in the type or quality of homes built.

Labor is a major component of housing construction costs. A persistent shortage of skilled construction workers adds to cost pressures and limits the pace at which new housing can be built.

Other costs associated with purchasing a home have also increased. Property taxes tend to rise with home prices, while home-insurance costs have increased significantly in recent years, partly because rebuilding has become more expensive.

Mortgage-rate lock-in and renter costs

High mortgage interest rates have added to the affordability challenge. Many families benefited from very low mortgage rates before 2022 and are now less likely to move because of the higher rates they would face. This lock-in effect reduces both housing demand and supply and limits housing-market dynamism.

About half of all mortgages still carry rates of 4 percent or lower, and nearly 80 percent have rates below 6 percent. In tight housing markets, the lock-in effect can increase home prices because the reduction in supply caused by fewer homeowners selling can outweigh the corresponding reduction in demand.

As a result, prospective homeowners face higher home prices, mortgage rates, home-insurance costs and property taxes.

Renter shelter costs have also increased. In August 2026, the consumer price index for rent of primary residence was 34 percent higher than in December 2019. Shelter-cost inflation had eased considerably from its pace in 2022–23, but shelter prices were still rising at an annual rate of about 2¾ percent.

Slower rent inflation could provide some relief over time, Barr said, but the higher level of rents remained a significant burden, particularly for lower-income renters. Rent-to-income ratios have increased substantially, and income-stressed households are spending more of their earnings on shelter even as housing quality has improved.

Barr said LMI families face greater challenges in both homeownership and affordable rental housing. Increasing supply should help households broadly, but policymakers also need to focus intentionally on the needs of low- and moderate-income households, which have difficulty finding affordable rentals and face even greater obstacles to homeownership.

Community Reinvestment Act and housing programs

The Community Reinvestment Act (CRA), enacted in 1977, has promoted housing affordability by encouraging banks to serve LMI communities, expand access to homeownership and support affordable-housing and community-development investments. Barr called the CRA a cornerstone of U.S. affordable-housing policy. The Federal Reserve administers the act for the banks it supervises.

In 2024 alone, CRA-related incentives supported more than $430 billion in loans and investments for homeownership, small businesses and affordable housing in LMI areas. Barr said the leverage of private capital helps expand the supply of affordable rental housing, often in partnership with local community-based organizations and the public sector.

The CRA has expanded homeownership opportunities for LMI families through measures such as down-payment assistance and partnerships with community development financial institutions (CDFIs). More recently, banks and nonbank mortgage providers have used alternative cash-flow underwriting to expand access to credit for prospective homebuyers.

The CRA also supports the effectiveness of the low-income housing tax credit (LIHTC), which has been a fundamental source of affordable-housing finance for 40 years. Banks that invest in LIHTC developments receive tax credits and CRA consideration for supporting housing in underserved areas.

Barr said the CRA creates an expectation to invest, while the LIHTC provides a mechanism for leveraging private capital to build safe, stable and affordable apartments. The LIHTC creates an average of 110,000 affordable-housing units per year, or about 4 million apartments since its enactment.

Multifamily construction is a key part of any strategy to improve access to affordable housing for low- and moderate-income families. On the demand side, housing vouchers supplement the incomes of LMI renters, although demand for vouchers far exceeds supply. Vouchers can also support supply by assuring affordable-housing builders that renters will have sufficient income to pay.

Recent bipartisan legislation passed by Congress may also support housing accessibility. The legislation includes provisions to expand rental assistance, establish guidelines for addressing zoning barriers to production, provide homeownership counseling and financial literacy, convert commercial buildings to housing and support manufactured housing.

Industry, government and community-development groups are also examining innovative building practices, including modular housing, as ways to lower costs and accelerate construction.

Public-private cooperation

Barr said people working directly in communities—including those developing affordable housing, counseling prospective homebuyers, managing emergency-assistance programs and working with voucher recipients—see the effects of the affordability problem daily. Families can be priced out of neighborhoods, while essential workers may be unable to find affordable housing near their jobs.

He said cooperation between the public and private sectors would remain important. Private-sector innovation in construction methods, materials and financing could lower development costs and expand what is feasible. Financial institutions, including CDFIs, support affordable-housing development through lending and investment. Community-development organizations contribute knowledge of local needs, relationships with residents and practical experience of what works in different settings.

Progress on housing affordability will require action across all of these areas, with each institution and sector contributing and working together, Barr said.

Earlier in 2026, Barr attended a Federal Reserve conference at which a panel of mayors from cities and towns in Arizona, Utah and Tennessee discussed practical ways to invest in affordable housing and improve their communities without regard to politics. The mayors were working with neighbors, cutting red tape and investing in public-private partnerships, he said.

Barr said that commitment by local leaders encouraged him. He concluded that this practical approach could help advance affordable housing across the United States.

Sources and notes

1. Barr said the views expressed were his own and not necessarily those of his colleagues on the FOMC or the Federal Reserve Board.

2. The Federal Reserve Bank of Atlanta’s monitor considers homeownership unaffordable when annual homeownership costs exceed 30 percent of annual median household income. It considers homeownership affordable when those costs are below 30 percent. Its affordability index uses a value of 100 or above to indicate that a median-income family could afford a median-priced home and a value below 100 to indicate that it could not afford one at the current interest rate. See Federal Reserve Bank of Atlanta (2026), “Home Ownership Affordability Monitor.”

3. See Benjamin J. Keys and Vincent Reina (2025), “Improving Housing Affordability,” in Melissa S. Kearney and Luke Pardue, eds., Advancing America’s Prosperity (Washington: Aspen Institute), pp. 130–66:

4. Keys and Reina, “Improving Housing Affordability.” The rental figure includes U.S. Census rental housing stock, including renter-occupied units and units available for rent.

5. See Joint Center for Housing Studies of Harvard University (2026), America’s Rental Housing 2026:

6. See Melissa Kollar and Zach Scherer (2025), Income in the United States: 2024, Table A-1, and Federal Housing Finance Agency, “Purchase-Only House Price Index®.” The income series is adjusted using the Census Bureau’s Chained Consumer Price Index for All Urban Consumers. The real house-price change is calculated by adjusting the FHFA national house-price index for consumer-price inflation. The FHFA index measures changes in single-family house prices and is not a median-price measure. The comparison illustrates the relative change in household purchasing power and house prices.

7. See Board of Governors of the Federal Reserve System (2025), “Housing,” in Report on the Economic Well-Being of U.S. Households in 2024, and National Association of REALTORS® (2024), “First-Time Home Buyers Shrink to Historic Low of 24% as Buyer Age Hits Record High,” press release, November 4.

8. See Jonathan Gross (2024), “Fannie Mae Research Identifies Challenges Faced by Today’s Renters,” February 1:

9. Freddie Mac estimated a 3.7 million-unit shortage as of the third quarter of 2024, while the National Association of REALTORS® estimated a 5.5 million-unit shortage.

10. See U.S. Census Bureau (2026), “Housing Inventory Estimate: Total Housing Units in the United States,” Federal Reserve Economic Data, Federal Reserve Bank of St. Louis, accessed September 21, 2026:

11. See Nathaniel Baum-Snow and Gilles Duranton (2025), “Housing Supply and Housing Affordability,” NBER Working Paper Series 33694:

12. Keys and Reina, “Improving Housing Affordability.”

13. See Edward Glaeser and Joseph Gyourko (2025), “America’s Housing Supply Problem: The Closing of the Suburban Frontier?” Brookings Papers on Economic Activity, Spring, pp. 375–425:

14. See Bureau of Labor Statistics (2025), “Construction Labor Productivity”: and Leo Sveikauskas, Samuel Rowe, James Mildenberger, Jennifer Price and Arthur Young (2014), “Productivity Growth in Construction,” BLS Working Paper 478:

15. See Thao Le (2025), “The Scarring of the Great Recession on Construction Labor and Housing Supply,” Real Estate Economics, vol. 25, May, pp. 543–73.

16. See Rose Quint (2015), “US Government: Number of Builders Declined 50% between 2007 and 2012,” National Association of Home Builders Economic Research Blog:

17. See Hubert Janicki and Erika McEntarfer (2015), “Where Did All the Construction Workers Go?” Research Matters:

18. The constant-quality price index measures the change in the cost of building a new single-family home while holding its size and features constant. See U.S. Census Bureau and U.S. Department of Housing and Urban Development, “Survey of Construction”:

19. See Joint Center for Housing Studies of Harvard University (2023), The State of the Nation’s Housing 2023:

20. See Joshua Blonz, Mallick Hossain, Benjamin J. Keys, Philip Mulder and Joakim A. Weill (2026), “Pricing Protection: Credit Scores, Disaster Risk, and Home Insurance Affordability,” NBER Working Paper Series 34848:

21. Federal Reserve Board staff calculations are based on the National Mortgage Database, with data extending through 2026:Q2. See also Hannah Jones (2026), “The Slow Unlock Continues in Q1: 22.1% of Outstanding Mortgages Have a Rate of 6% or Higher,” July 24:

22. See Aditya Aladangady, Jacob Krimmel and Tess Scharlemann (2024), “Locked In: Mobility, Market Tightness, and House Prices,” Finance and Economics Discussion Series 2024-088, revised May 2025:

23. Bureau of Labor Statistics shelter data accessed through FRED; Joint Center for Housing Studies of Harvard University, America’s Rental Housing 2026.

24. See National Association of Affordable Housing Lenders, “Community Reinvestment Act”:

25. See Michael S. Barr (2026), “Developing Communities through Public–Private Partnerships,” speech delivered at the 2026 National Community Investment Conference in Phoenix, Arizona, March 24: https://www.federalreserve.gov/newsevents/speech/barr20260324a.htm

26. Keys and Reina, “Improving Housing Affordability.”

27. See U.S. Congress (2026), “21st Century ROAD to Housing Act,” H.R. 6644, 119th Congress, July 11.

The initial published version of Barr’s remarks included two sentences on page 3 that mistakenly compared rents in 1980 and more recently. On September 28, 2026, the remarks were corrected to state: “About 20 percent of rental housing units rented for $1,000 or less a month in 2024, but in 1980, adjusted for inflation, 55 percent rented for the equivalent of that amount.”