President Joe Biden has plans to tackle wealth inequality, climate change, working-parent stress, excessive health care costs and most other things voters care about. There’s one thing he doesn’t have a solution for, though: An extreme shortage of homes and skyrocketing prices that are locking out many buyers.

The red-hot housing market is good news, in a way. Home values have risen 12% in the last year, about three times what might be considered normal appreciation. That makes homeowners better off, contributing to the “wealth effect” that leads people to spend more as the value of their assets rises. That has helped insulate property owners from some effects of the coronavirus downturn.

But it’s hell on buyers, with many finding themselves locked out of what is still an important way to build wealth. Last fall, the supply of homes for sale hit the lowest level in at least 57 years, and it’s still close to that record low. Other imbalances in the post-Covid economy will sort themselves out. But the supply-demand mismatch in housing is the “last mania standing,” as Yahoo Finance’s Myles Udland observed recently.

It will probably be standing for a while. Capitalism has a built-in solution for most shortages. Prices rise, raising the incentive to increase supply. Existing producers crank up assembly lines and new producers jump into the market. Consumers get what they need and prices return to equilibrium. This is how current shortages of semiconductors, lumber and other things are likely to sort themselves out.

Local issues

Some things are different, including housing. In many desirable areas, there’s not enough land to build on. Zoning rules often prohibit multi-family dwellings or high-rises that might help solve supply shortages. Where there is available land, permitting can slow construction. Environmental concerns increasingly block new projects. And homebuilders that have overbuilt in the past, forcing them to discount, often don’t mind tight supply that keeps prices high.

There’s not much Washington can do about this. Permitting, zoning and environmental restrictions are local issues, not national ones. Federal incentives that subsidize housing can unintentionally worsen the problem by pushing up demand, and therefore prices. Even now, the Federal Reserve is doing that, in effect, by keeping interest rates extremely low. Super-cheap mortgages are one factor pushing demand through the roof.

On paper, falling mortgage rates have made homes more affordable, despite soaring prices. The National Association of Realtors says a median earner buying a median-priced house would need 14.4% of monthly income to pay principal and interest. That’s down from an average of 15.7% in 2019. But rising prices mean buyers need more cash up-front for a down payment, which can be prohibitive. And the NAR’s data is based on incomes that have jumped around a lot during the last 12 months, mainly because lower-income workers have dropped out of the labor force the most, causing an anomalous spike in reported wages. So their numbers may overstate affordability.