Home prices and rents are largely determined by housing demand versus supply. Changes in demand for homes are determined by net household formation (new households formed versus those that disappear). Changes in the supply of homes are determined by net new construction (units added, less those lost to obsolescence or demolition). Every household demands one housing unit, regardless of whether the unit is owned or rented. Any factor that does not influence housing supply or demand is of second-order importance.

Home prices and rents have gone up substantially over the past few years. Several factors have been blamed for these increases, but none of them fundamentally alters the supply-demand balance. Lower mortgage costs may entice the marginal renter to become a homeowner, but it does not change the supply-demand balance. The rise of the institutional single-family rental operator does not change the supply-demand balance. Developers who build high-end housing are not driving up home prices; they are creating additional units, which allows for filtering. The only solution to the supply shortage is more supply. The US needs a coherent federal policy to produce this. Although the lack of political will at the local level has contributed to driving up costs, these local policies can be countered by more aggressive federal policies.