July 2021: The Tokyo Summer Olympics began, Bad Habits by Ed Sheeran topped music charts, and the last month in which most Americans could truly afford a home.
Housing affordability, typically measured as the percentage of monthly income needed to pay for housing, rose above the 30% benchmark in August 2021 and remained higher according to the Federal Reserve Bank of Atlanta’s Home Ownership Affordability Monitor (HOAM). The most recent measure (in October 2025) for a median-income household put that percentage at 43%.
Policymakers, home builders, real estate associations and financial institutions like TD Bank want to act but the solution to housing affordability is complex and involves all groups working together. Higher home prices are good for existing homeowners but create a bigger obstacle for aspiring buyers.
Several options are on the table. "The broader question is whether these actions will deliver a long-term improvement in affordability or merely provide temporary relief," said Admir Kolaj, economist with TD Economics.
Measures for Homebuyers Taking Center Stage
Admir's report, Assessing the Impact of U.S. Housing Affordability Proposals, notes that policymakers are considering a wide range of proposals aimed at easing financial pressures for potential homebuyers.
Measures that would work on the 'demand side' of housing (homebuyers) may include extending the maximum number of years allowed on a mortgage loan, increasing the amount that could be withdrawn penalty-free from retirement accounts or limiting large investors' purchases of single-family homes among other considerations. The end goal of these proposals is to potentially reduce monthly payments and to ease entry into the housing market.
For instance, extending the length of a mortgage from the current 30 years to 50 years could reduce homebuyers' monthly payment burden by smaller amounts — TD Economics estimates by $150 to $250. But in the longer loan repayment term, equity builds more slowly and it leads to paying significantly more in interest over the lifetime of the loan.
Another consideration for homebuyers is how to bulk up their down payment and boost purchasing power. Expanding the current penalty‑free withdrawals from retirement accounts could help buyers increase their down payments and boost purchasing power. Still, such a move could potentially leave some households less financially secure in the future during retirement.
"Larger down payments could help more households qualify for mortgages and enter homeownership," Admir said. "However, without corresponding increases in home supply, increased purchasing power would likely translate into faster price growth, potentially eroding the initial affordability benefit over time."
Supply‑Side Measures: Essential but Slower to Occur
Making mortgage payments more affordable is a notable goal, but what if there aren't enough homes to purchase (the supply side)? Today's market lacks enough housing inventory to accommodate everyone who wants to own a home. For starters, home values on the East Coast are up by 40–60% in many areas over the past five years, according to Zillow Home Value Index. This is great for current homeowners but not for prospective buyers.
Additionally, interest rates are higher than when those owners purchased five or more years ago, so fewer current owners are incentivized to put their home for sale when considering a move, given that they could face a much higher interest rate on their new home. Many are staying put as a result.
Strategies that may help create more inventory are finding ways to lower construction and development costs and looking at alternatives to the traditional U.S. single family home, according to TD Economics.
Studies show that about 75% of the nation's land for housing is zoned only for single family homes, meaning townhomes, condominiums or duplexes aren't allowed. Increasing supply could mean easing zoning rules in areas where the infrastructure wouldn't be overburdened and create greater housing density. Examples of these local initiatives include permitting accessory dwelling units (ADUs), allowing multifamily structures, and relaxing or eliminating parking requirements. More available homes would help keep price growth in check, but zoning decisions are primarily a local and state government issue and could happen more quickly in some areas than others.
"No one proposal offers a silver bullet in addressing the U.S. housing affordability challenge," Admir said. "If various proposals are implemented collectively, there is more potential to move the needle."
Learn more about proposals to address housing affordability in this TD Economics report.
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