Could the Gold Standard help the affordability crisis?

Posted On: April 12, 2023

Matt Churnock, Director of Planning & Development

The removal of the Gold Standard has negatively impacted low-income earners. We must fix our market economy to fix our affordable housing crisis.

The numbers are sobering. Forty-six million people live in poverty in the United States, an increase of over 38 percent in just under 15 years. This year’s affordable housing gap is over seven million units. The homeownership gap between Blacks and whites is 31%, more significant than in 1968 when housing discrimination was legal

We need to build more houses, especially for those in lower income brackets, which have been historically locked out of the market. However, getting there is not so simple.  

Challenges in Lowering Construction Costs

Much work has been done on making the construction of homes cheaper and thus reducing the cost of renting or buying. Advances in modular construction, material repurposing, and even 3-D printing of components provide potential solutions to lower construction costs. However, actual construction is roughly 60% of the total project cost, and so far, advances in construction methods have failed to drastically lower construction costs. 

Policy Efforts to Close the Funding Gap

Efforts have been made to lower the gap between construction costs and rental revenue. For example, in 2020, Congress passed sweeping legislation that created the 4% LIHTC rate for housing bonds permanent. It is estimated that this policy change will result in the creation of over 130,000 affordable units. In addition, other policy changes, like reducing the ’50 percent test’, could make 1.4 million additional affordable units possible. The Biden Administration also recently announced several new programs to help increase the housing supply, including expanded federal financing, support for inclusive zoning at the local level, and new financing options for multi-family construction. 

The Stagnation of Wages and Housing Affordability

Yet, even with advances in lower construction costs or better financial tools, wages have effectively stagnated over the last 40 years, making renting and homeownership challenging to many people, especially low-income earners. 

Looking at the average cost of houses over time, we see a home in 1963 cost an average of $18,050 ($173,372 in inflation-adjusted 2022 dollars) compared to an average price of $454,525 in 2022. This may look like housing has drastically increased in cost since 1950; however, compared to a fixed commodity, the picture looks much different. 

Comparing Housing Affordability to Gold Standard

In 1963, the spot price for an ounce of Gold was $35.25, making a home built in 1950 cost roughly 500 ounces. At the end of 2022, with Gold prices around $1,802 per ounce, the average home would cost 252 ounces, a little over 50% less than in 1963. So, in terms of Gold, homes should be more affordable, not more expensive.

However, using this same Gold comparison to look at wages is a different story. The average family income in 1963 was equivalent to 175 ounces of gold compared to only 31 ounces in 2020. That same home cost only 3 years of wages in 1963 compared to over 8 years in 2022. That’s a 166% increase.  

How measuring in gold changes the picture

By comparing these two measures side by side, this graphic highlights the importance of considering different units of measurement when analyzing economic trends. While nominal dollars are a common measure of value, they do not always tell the whole story.

Gold Standard, affordable housing crisis

The Impact of Removing the Gold Standard on Affordable Housing

In 1971 President Nixon ended the dollar convertibility to Gold and implanted wage and price controls to address the inflation problem, marking the end of the Bretton Woods monetary system. While this may have had some short-term benefits, there is plenty of evidence to show that removing the Gold Standard has negatively impacted low-income earners. It created a massive affordable housing gap, not only on the construction and finance sides but also on the consumer side. Fifty years later, policymakers are wrestling with how to address the latest inflationary crisis, which is having a monumental impact on low-income individuals. 

Fixing the Market Economy for Affordable Housing

Undoubtedly, there is a growing need for affordable housing across the country. And while there have been many innovative approaches to help close the funding gap, it may be time to look harder at what policies should be implemented to fix our market economy so the people who need affordable housing can afford it.

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