US President Joe Biden and his economic team, concerned that elevated mortgage rates and housing costs are hurting Americans and hindering his re-election bid, are searching for new ways to make housing more available and affordable.

Biden’s forthcoming budget request will call on Congress to pass a raft of initiatives to build more affordable housing and help certain Americans afford to purchase a home. Biden is also expected to address housing affordability for both homeowners and renters in his State of the Union address next week, according to people familiar with the speech planning.

On Thursday (Feb 29), administration officials announced a handful of relatively modest executive actions, including steps to increase the supply of manufactured homes. White House officials said this week that they would announce “additional actions we are taking to lower housing costs.”

The increased focus on housing affordability comes as congressional Republicans assail Biden over high mortgage rates and housing costs, and as allies of his warn that those costs are hurting working-class voters he needs to win in November.

There is little Biden can do immediately and directly to affect mortgage rates. Those are heavily influenced by the Federal Reserve’s interest rate policies, and the White House is careful not to appear to be pressuring the central bank to cut rates. Fed officials have signaled that they expect to begin cutting rates this year.

New research from economists at Harvard University and the International Monetary Fund – including Lawrence Summers, former Treasury secretary – suggests high mortgage rates and other borrowing costs are contributing to Americans’ relatively gloomy mood about the economy, despite low unemployment and healthy growth. By weighing on consumer confidence, those costs could be depressing Biden’s reelection hopes.

“If you’re Biden, you’re cheering for inflation to continue its way down and for the Fed to lower interest rates,” Judd NL Cramer, a Harvard economist and one of the paper’s authors, said in an interview. Biden should particularly care about that, he added, “because consumers are more aware than we’ve given them credit for of those borrowing costs.”

Biden has made a habit of asking aides about the current state of mortgage rates, which have more than doubled since he took office and as the Fed raised rates to combat the worst bout of inflation in four decades.

The average 30-year mortgage rate jumped to nearly 8 per cent last fall from under 3 per cent in 2021. It has declined slightly this year but recently ticked up again and now sits just under 7 per cent.

Monthly payments for prospective homeowners have soared because of the increase. The monthly payment for a typical mortgage for a US$400,000 home – which is just under the median sales price nationwide – is about US$2,900 at a 7 per cent interest rate, assuming a 20 per cent down payment. That is about US$800 more per month than the payment would be at a 3 per cent rate.

The increased burden of high borrowing costs can make homebuying seem prohibitive, which is one reason polls show that younger adults in particular are concerned about housing prices. Cramer said his research suggested that high mortgage rates also frustrate existing homeowners, who may want to sell their home but have seen the ranks of potential buyers thinned because fewer people can afford to pay their asking price.

The research, published on Monday as a National Bureau of Economic Research working paper, seeks to shed light on a puzzle of the Biden economy: why consumer sentiment remains lower than historical evidence suggests it should be, given the job market is strong and wages are rising.

Drawing partly on alternate ways of calculating inflation rates in the past, the researchers – Cramer, Summers and Karl Oskar Schulz of Harvard, along with Marijn A Bolhuis of the IMF – conclude that rising borrowing costs for homes, cars and more under Biden account for much of the depression in sentiment.

“Consumers, unlike modern economists, consider the cost of money part of their cost of living,” they write.

White House economists have run their own calculations on consumer sentiment. They find it is largely dragged down by persistently high grocery prices and residual frustration with the coronavirus pandemic. In recent months, as mortgage rates fell slightly, they calculated that housing issues were helping to brighten consumers’ moods.

Still, Biden’s aides say they know how difficult housing costs are for Americans. The aides are scrounging for ways to alleviate them, even on the margins, before the election.

Biden has already tried and failed to persuade Congress to pass expansive plans to build more affordable housing units, along with aid for certain Americans trying to buy homes, such as down-payment assistance for people whose parents do not own homes. Republicans who control the House have not been receptive to those proposals this year.

“The president considers the long-term shortage of affordable housing to be one of the most important pieces of unfinished business we have,” Jared Bernstein, chair of the White House Council of Economic Advisers, said in an interview.

The researchers suggest that a drop in mortgage rates could swiftly lift Biden with consumers and in his campaign. They suggest the slight fall in rates in recent months was a reason sentiment surged at the end of last year and the start of this one.

White House officials agree. But, they are quick to add, Biden will not push the Fed to cut rates.