News feature Affordability, supply, interest rates and high immigration create a scenario in the US that is all too familiar, writes Matthew Cranston.

Abla Assikouyo, a nanny who emigrated from Togo, and her husband Komi, who works at an Amazon warehouse, have just experienced one of life’s great challenges: buying their first home in America.

But the couple’s experience was made almost unbearable by pressures all too familiar to millions of Australians: cost-of-living strains, rising home prices, high interest rates, and supply shortages.

‘‘It was very, very difficult,’’ says Abla, 35, who has three children. ‘‘We got a loan approval for $US500,000, but then they reduced it to $400,000 because of our jobs and our expenses like car loans. So, even when we found the right house, it was difficult for us to pay.’’

A months-long search finally yielded a three-bedroom home in the county north of Washington for $US475,000 ($712,000), still well above their loan offer. However, one of America’s largest lenders agreed to cover all but their deposit of just 3 per cent, charging a 6.99 per cent interest rate.

‘‘We were lucky. My [extended] family started looking before us for one year, and they could not get anything. They had a loan, but they couldn’t buy one, so they went back to renting. The competition is very bad,’’ says Abla

As in Australia, America’s first home buyers are struggling to break into the market. Despite high interest rates, which often depress prices, supply constraints and new housing stock shortages are keeping prices relatively high.

The result is that affordability in the US, while not as bad as Australia, has deteriorated. The classic measure of affordability – median home price to median household income – varies widely from one population centre to the next, but the average, of four times, is high by historical standards, according to analysts Demographia.

In Australia, average prices are nine times household income.

Consequently, first home buyers now account for just 30 per cent of purchases in the US, down from 50 per cent 10 years ago.

In Canada, where the federal government has announced billions of dollars in new loans and tax breaks, housing affordability has also worsened, despite a recent jump in new home starts to their highest level in seven months.

In the US and Canada, the housing crisis has been aggravated by a surge in immigration, also a key contributor in Australia. With America’s growing immigration problems, demand is outpacing supply. US residential property prices increased 5 per cent in the past year, despite the 22-year-high interest rates. Rents are also still rising at more than 5 per cent a year.

Supply is lacking. The seasonally adjusted number of new private housing units under construction in the US has fallen for the past five months and is down 4 per cent from this time last year, despite hitting a record 1.7 million last July. Economists expect another low number when the latest figures are released on Thursday (Friday AEST).

President Joe Biden has pledged to tackle the crisis, but experts say his administration is too focused on making it easier to buy homes, rather than increasing the number available.

‘‘Government is very good at adding to demand, but very poor at adding to supply,’’ says Edward Pinto, co-director of the American Enterprise Institute’s Housing Centre.

‘‘When you have a supply shortage, and you increase demand, the inevitable result is that prices go up. And so, rather than making housing more affordable, the government makes it less affordable. That in a nutshell is the problem we face,’’ he tells The Australian Financial Review.

Biden is promising to add 2 million new ‘‘affordable’’ homes to the market if he gets tax credit legislation passed in Congress. Prime Minister Anthony Albanese has set a target of 240,000 new homes a year – twice the number currently being built in Australia.

Biden is proposing a $US10,000 tax credit for first-time home buyers and those who sell their starter homes. His administration estimates the credit would reduce the mortgage rate on a median home by more than 1.5 percentage points for two years. More than 3.5 million middle-class families could benefit, it says. Presidential rival Donald Trump has not announced any major policy on lifting affordable supply. But he says one solution is to remove investment property tax credits, something Australia’s Labor Party proposed during the 2019 election.

Pinto agrees abolishing tax deductions for second homes could make a difference to supply. ‘‘If the government stopped subsidising second homes through the interest deduction, those existing homes could convert from second homes to primary residences. It would decrease demand because people wouldn’t be buying as many second homes,’’ he says.

Some 700,000 homes would shift from being second homes to primary residences over 10 years if the idea went ahead, Pinto’s institute has calculated. But Congress is unlikely to agree on the initiative, as many legislators who own second homes would take a hit, he says.

While governments in Australia, the US, Canada and elsewhere are struggling with measures to boost supply, others are tackling the situation by getting out of the way. A surge in illegal immigration has resulted in skyrocketing home prices in California, prompting an exodus of residents to Texas, searching for cheaper houses.

That’s proved an economic boon for Texas, which has a low regulatory environment. Texas built more homes than any other state in the year to July 31, 2023, adding 260,000 – more than twice as many as California, according to the US Census.

Texas home builder Steve Boyd says his higher-end home building business has grown at 10 per cent every year for the last few years. He’s been able to hold his margin despite rising costs.

‘‘The demand has been really good for us,’’ he says. ‘‘But I don’t see how the government can help the supply, though. Maybe removing more regulation.’’AFR