Housing affordability drives a blue wave: Can Democrats finally fix America’s housing crisis?

The election outcome comes at a time when the US housing market is struggling with high home prices, elevated mortgage rates and a shortage of homes. Millions of Americans are finding it increasingly difficult to purchase properties, existing homeowners are reluctant to sell because moving would mean taking on mortgages at significantly higher interest rates.

Housing affordability was among the major issues influencing voters in the elections. The question now is whether a Democratic-controlled Congress can translate its electoral victory into meaningful changes in the housing market, particularly with President Donald Trump retaining veto powers.

Why housing affordability became an election issue

The US housing market has been facing an affordability crisis, with home prices and borrowing costs putting homeownership beyond the reach of many households.

According to senior economist Jake Krimmel of Realtor.com, the 30-year fixed-rate mortgage reached its highest level in three years last month before declining to 7.24% last week, according to Fannie Mae.

The problem extends beyond prospective buyers. Existing homeowners with long-term fixed-rate mortgages are also reluctant to move because purchasing another property would mean borrowing at today’s higher rates.

A Reuters Breakingviews analysis published on November 6 indicated how this has contributed to a slowdown in housing transactions. Roughly three-quarters of outstanding residential mortgages carry interest rates below 6%, the current cost of a 30-year mortgage is above 7%.

Consequently, homeowners who secured cheaper mortgages in previous years have little financial incentive to sell their properties and purchase new ones. This has reduced the number of homes entering the market, keeping prices elevated and limiting housing mobility.

The affordability challenge is also indicated in household purchasing power. Apollo Global Management Chief Economist Torsten Slok estimates that nearly 70% of US households cannot afford the median US home, valued at $400,000, assuming a 6.5% mortgage rate and a 10% down payment.

What a Democratic Congress could change

One of the immediate priorities for Democrats is expected to be expanding access to affordable housing and encouraging construction.

According to an October 30 analysis by Desjardins, Democrats could explore measures to support first-time homebuyers and improve access to housing assistance.

However, Congress has limited control over home prices and mortgage rates. Property prices are largely determined by market conditions, mortgage rates are influenced by economic factors, including Treasury yields and inflation expectations.

Krimmel said, “Jumpstarting the housing market relies on a calmer geopolitical environment and bond market in the short run,” plus more housing supply and a “more dynamic labor market in the long run.”

This means legislative changes alone may not be sufficient to resolve the affordability crisis. Lower borrowing costs, stronger household incomes and increased housing construction will also be necessary.

More funding for affordable housing programmes

A significant area where Democrats could make a difference is federal funding for affordable housing.

With Democrats taking control of the Senate Appropriations Committee, lawmakers will have greater influence over the fiscal 2028 spending bill for the Department of Housing and Urban Development (HUD).

According to Ali Solis, CEO of Solis Strategic Solutions, the new leadership could provide greater protection for programmes such as HOME, Community Development Block Grants (CDBG) and housing vouchers.

These programmes support affordable housing development, community infrastructure and rental assistance for low-income households.

Solis also believes the change in congressional leadership could improve the chances of securing funding for programmes introduced under the bipartisan 21st Century ROAD to Housing Act.

The legislation, which automatically became law on July 11 without the president’s signature under a constitutional provision, includes measures to encourage housing construction, reduce regulatory barriers, expand financing options and limit purchases of single-family homes by large institutional investors.

The legislation is important because it gives a bipartisan framework for addressing housing supply constraints. However, some of its provisions will take years to influence the market, and implementation will also depend on state and local governments.

Changes in congressional leadership could influence housing policy

The election results will also bring changes to the leadership of key congressional committees responsible for housing and financial policy. These committees play an important role in shaping housing finance, federal spending and regulatory oversight.

The new leadership is likely to increase scrutiny of the Department of Housing and Urban Development, the Federal Housing Finance Agency, Fannie Mae and Freddie Mac.

According to Solis, lawmakers could also hold more oversight hearings on the Treasury Department’s proposed rules concerning large institutional investors purchasing single-family homes.

The Affordable Housing Credit Improvement Act (AHCIA) could also receive renewed attention. The legislation seeks to strengthen the Low-Income Housing Tax Credit, an important federal programme used to finance affordable rental housing.

Emily Cadik, CEO of the Affordable Housing Tax Credit Coalition, said the election has created a need to recruit new congressional supporters for the housing credit.

Several lawmakers who supported the legislation will not return to Congress, making bipartisan support important for its future.

Will Democrats be able to bring down mortgage rates?

Regardless of gaining control of Congress, Democrats cannot directly dictate mortgage rates or force home prices lower.

Mortgage rates are closely linked to the yield on the 10-year US Treasury note, which is influenced by inflation expectations, government borrowing and investor demand for bonds.

Reuters Breakingviews analysis points out that the current housing crisis has three broad possible solutions: falling home prices, household incomes growing faster than property prices, or a substantial reduction in interest rates.

A sharp fall in home prices could improve affordability but also risk triggering financial instability. Faster income growth could help households catch up with housing costs, although this process could take several years.

Lower interest rates could provide relief by reducing monthly mortgage payments. However, the Federal Reserve’s monetary policy and broader economic conditions play a greater role in determining borrowing costs than congressional legislation.

The analysis also shows how the Trump administration’s large fiscal deficit and conflict with Iran could put upward pressure on borrowing costs through inflation concerns.

Any easing of geopolitical tensions could improve oil supplies and reduce inflationary pressures, potentially helping mortgage rates. However, the outcome remains uncertain.

Trump’s veto power could limit Democratic plans

A Democratic-controlled Congress does not mean the party will have complete control over housing policy.

Trump has already indicated that he would use his presidential veto powers to block legislation he considers unacceptable.

“I have the power of veto, and the power of veto, you know, it’s impervious,” Trump told Fox News after the election.

This could make it difficult for Democrats to pass major housing reforms without Republican support. Although the ROAD to Housing Act demonstrates that bipartisan cooperation is possible, more ambitious proposals could face political resistance.

David Gasson, partner at MG Housing Strategies, told Reuters that the election reflected public dissatisfaction with the administration’s handling of economic concerns.

He also noted that housing organisations would need to work with lawmakers across party lines to advance their priorities.

What lies ahead for the US housing market?

The Democratic victory has placed housing affordability firmly on the congressional agenda. Increased funding for rental assistance, support for affordable housing construction, stronger housing tax credits and scrutiny of institutional investors could shape policy discussions over the next two years.

However, the immediate impact on home prices and mortgage rates is likely to remain limited.

As Krimmel noted, “Democrats have a clear mandate to focus on pocketbook issues, but whether they can translate that into a legislative agenda that delivers on that mandate remains to be seen.”

The biggest challenge for the new Congress will be balancing affordability measures with the need to increase housing supply, secure funding and maintain bipartisan support.