Federal Reserve Governor Michael S. Barr told a housing conference in Chicago on Sept. 23 that he expects the central bank will need to raise interest rates further, and then spent the rest of his remarks explaining why the cost of shelter in the United States is a problem that rate policy alone cannot fix.
Speaking at “Housing Affordability 2026: A Community Development Summit,” hosted by the Federal Reserve Bank of Chicago, Barr said he supported the quarter-point increase the Federal Open Market Committee approved on Sept. 16 and expects more. “In my view, given changes to the economy, we were out of position, and we made an adjustment in the right direction,” he said in the prepared text of his speech. “In my base case, further policy adjustments are likely to be needed to ensure inflation comes down to target in a timely fashion.”
Barr, who oversees the Fed Board’s Division of Consumer and Community Affairs and votes on rate decisions, noted that the views were his own and not necessarily those of his FOMC colleagues. The Sept. 16 decision itself was unanimous: the committee voted 12-0 to lift the federal funds target range by a quarter point, to 3.75% to 4%, saying in its statement that inflation “remains elevated” and that the move “will support a timelier return to the Committee’s 2 percent goal.” RealtyWire covered the market’s expectations heading into that meeting.
The affordability picture Barr described
Barr leaned on the Atlanta Fed’s Home Ownership Affordability Monitor, an index in which a reading below 100 means a median-income family cannot afford a median-priced home at prevailing mortgage rates. Homes were affordable on that measure from after the 2006 price crash until the pandemic, he said; the index has fallen since and reached 68 in July 2026, which he described as the lowest in 21 years. Real, constant-quality house prices are at a record high in many parts of the country, he added.
The income side has not kept up. Between 2000 and 2024, Barr said, real median household income rose roughly 17% while real U.S. house prices rose approximately 70%. Citing the Fed’s own Report on the Economic Well-Being of U.S. Households, he said 68% of prospective first-time buyers in 2024 reported they could not afford a down payment.
Renters fare no better. In 1980, 55% of rental units rented for $1,000 or less; adjusted for inflation that would be about $3,500 today, but only 20% of units rent below that level. About half of all renters are cost burdened, paying 30% or more of income on rent, and about one-quarter pay at least half. The consumer price index for rent of primary residence stood 34% above its December 2019 level in August of this year, Barr said, even though the pace of shelter inflation has cooled to roughly 2.75% a year.
Mortgage rates compound both problems. The average 30-year fixed rate this week reached its highest level since May 2024. Barr addressed the question directly: short-term policy rates influence longer-term borrowing costs, he said, but many other factors move mortgage rates, and the Fed’s contribution is to bring inflation down, since “mortgage rates are generally lower when inflation is lower.”
Four reasons the houses were never built
The analytical core of the speech was Barr’s account of the supply shortfall, which he put at roughly 2 million to 5.5 million units depending on methodology β Freddie Mac estimated 3.7 million as of the third quarter of 2024, the National Association of Realtors 5.5 million. Against a stock of about 150 million units, that is a deficit of 1% to 4%, small in percentage terms but consequential because markets need vacancy and inventory to function.
He identified four causes. The first is land use: decades of accumulated zoning, permitting and building rules, including minimum lot sizes and single-family-only districts, have limited density and lengthened timelines, with the variation between jurisdictions eroding builders’ economies of scale. Notably, Barr said the slowdown is no longer confined to famously hard-to-build cities such as New York, San Francisco, Boston and Washington; regulatory restrictions are also a factor in traditionally fast-growing Sun Belt markets including Atlanta, Phoenix and Miami.
The second is productivity. Bureau of Labor Statistics data show construction productivity has exhibited little long-run growth since 1987. Barr tied that to the labor-intensive nature of the work β pouring foundations, framing walls, finishing interiors β and observed that computer-aided design, building information modeling and digital project management have improved coordination “without fundamentally changing how homes are physically built.”
The third is the lasting damage of the last housing bust. The number of homebuilders fell by half between 2007 and 2012, from 98,000 to 49,000. More than 30% of construction workers left the industry and another 25% either left the labor force or moved to informal work β what Barr called “a huge, generational loss of skill and manpower.”
The fourth is the post-2020 cost shock. The Census Bureau’s constant-quality price index for new single-family homes rose roughly 40% between 2020 and 2025. Property taxes rise with home values, and insurance costs have climbed with the cost of rebuilding.
Rate policy shows up here too, as a brake on turnover rather than on construction. About half of all outstanding mortgages still carry rates of 4% or lower and nearly 80% are below 6%, Barr said, leaving owners reluctant to sell. In tight markets, he argued, that lock-in can push prices up, because the listings it removes outweigh the buyers it sidelines.
The tools he pointed to
Barr’s prescriptions were the familiar federal ones, described in terms of scale. Community Reinvestment Act incentives supported more than $430 billion in loans and investments for homeownership, small business and affordable housing in low- and moderate-income areas in 2024 alone. The low-income housing tax credit, now 40 years old, produces about 110,000 affordable units a year and roughly 4 million apartments to date; paired with CRA obligations, he said, “the CRA creates the expectation to invest, and the LIHTC provides the tool to do it.” Housing vouchers help renters, though demand far exceeds supply.
He also noted that Congress recently passed bipartisan legislation containing provisions on rental assistance, zoning barriers, homeownership counseling, commercial-to-residential conversions and manufactured housing, and pointed to modular construction as a cost lever the industry is still testing.
What the speech did not offer was any suggestion that the Fed will ease to relieve housing costs. That framing is consistent with what Fed Chair Kevin Warsh told the Jackson Hole symposium in August, when he acknowledged housing strains while placing inflation first. On our reading, Barr’s speech makes the trade-off unusually explicit: the same policy path he says is needed to bring inflation down is the one that keeps mortgage rates high, and the relief he offers the housing market is the promise that lower inflation eventually means lower rates.
