A proposal late last year by Bill Pulte, President Trump’s head of the Federal Housing Finance Agency, to create a 50-year home mortgage sparked intense debate—and some political opposition. Though Trump embraced the idea as a way to lower monthly payments, he’s now said to be backing away from it.
That’s a good thing because, as critics note, while a 50-year loan would reduce monthly costs, it would saddle homeowners with far more interest and keep many paying into retirement. But that’s only part of the problem. The proposal is the latest in a long line of misguided federal “affordability” schemes that have caused market distortions, encouraged risky borrowing—and repeatedly ended in crisis. Our current housing troubles stem in no small part from the 2008 financial crisis, when policy pushed lenders to extend credit to borrowers who ultimately couldn’t repay, bankrupting institutions and choking home construction for over a decade. Rather than repeat those mistakes, the Trump administration should focus on reducing the cost of building homes in a country facing a severe shortage.
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Homeownership is so central to the American dream that politicians often rush to boost it at the first sign of a slowdown. After World War I, for instance, then–Commerce Secretary Herbert Hoover, noting that homeownership had slipped during the conflict—by a mere 0.3 percentage point—declared a national emergency. “Nothing is worse than increased tenancy and landlordism,” the future president suggested. The New York Times agreed, warning: “The masses [are] losing their struggle for a better life.” The alarm led to 1927 legislation allowing banks to expand residential lending. You don’t need to be an economic historian to spot the bad timing. Banks loaded up on mortgages, and when the 1929 crash hit, hundreds of thousands of borrowers defaulted and thousands of banks collapsed. With financing for homebuilding evaporating, residential construction plunged 70 percent.
The Depression prompted Washington to step in with new institutions to regulate the housing market, including the Federal Housing Administration, which insured mortgages, and the Federal National Mortgage Association, or Fannie Mae, which bought loans from banks. These interventions made the federal government a major force in housing—and opened the door to political meddling. A striking example came during the post–World War II boom. As home prices climbed, federal regulators in the 1950s began loosening lending standards on FHA-insured and Veterans Administration–backed mortgages, requiring smaller down payments and extending loan terms. Eventually, the failure rate of these loans spiked, even as foreclosures of conventional bank mortgages, whose lending standards hadn’t been loosened, held steady, according to a 1970 study published by the National Bureau of Economic Research.
Undeterred, Congress in 1968 passed the Housing and Urban Development Act, letting the FHA issue subsidized loans—with similarly relaxed standards—to low-income families in urban neighborhoods, again in the name of expanding homeownership and strengthening communities. Advocates even claimed that single mothers on welfare were good credit risks because their income was dependable. But many borrowers were unprepared for the obligations of homeownership, and due diligence on these government-backed loans was weak, leading to massive defaults. So many loans failed in Detroit that the FHA became the city’s largest homeowner, at a cost to taxpayers of roughly $200 million. In New York City, some 7,500 defaults in neighborhoods such as Bushwick and Brownsville produced another $300 million in losses. The problem, said Harvard historian Louis Hyman, was that the government “tried to solve a problem of wealth creation through debt creation.”
Counterintuitively, the failure of these subsidized lending programs only increased Washington’s pressure to expand homeownership. Over the next 30 years, beginning with the 1977 Community Reinvestment Act, Congress pushed banks to lend to higher-risk borrowers and prodded federal mortgage insurers to purchase those loans, freeing up capital for still more lending. By 2006, risky subprime mortgages had surged from under 5 percent of loans in the 1990s to more than one-fifth of the market. When interest rates began rising in 2004, low-credit borrowers with adjustable-rate mortgages couldn’t keep up, triggering a crisis that swept up homeowners, banks, Wall Street firms, Fannie Mae and Freddie Mac, and investors in mortgage-backed securities.
Homebuilding subsequently collapsed, from roughly 1.8 million new units in 2006 to about 580,000 by 2011. For ten years, the number of new units built annually fell short of the growth in U.S. households; in a healthy market, construction typically runs slightly ahead of household formation. The long slowdown created a massive shortfall in supply, with some estimates putting today’s deficit at as many as 6 million “missing” homes.
The damage to the construction industry remains central to today’s housing troubles. Jobs fell by as much as 50 percent, firms went under, and many workers left the field. Even as demand returned, builders struggled to ramp up production—and in a far tighter labor market, wages have soared. Labor productivity in homebuilding has since plunged, even as productivity rises elsewhere. Combined with Covid supply-chain disruptions and the impact of tariffs on construction materials, the labor shortage has pushed the average cost of building a home to $428,000. Including land and other expenses, the total now averages $665,000, up from $454,000 before the 2008 crash, according to the National Association of Home Builders.
The 50-year mortgage does nothing to address the real problem: constrained supply. By making financing easier without increasing the number of homes, the proposed policy would likely be counterproductive—more money chasing too few houses would simply drive prices higher. The loan structure also introduces new risks. Because principal gets paid down so slowly, even a modest downturn could leave many borrowers underwater, owing more than their homes are worth. Households facing job loss or financial strain would then be trapped in properties they can’t afford and can’t sell for enough to cover the loan, setting the stage for another wave of foreclosures.
Trump is fond of saying that, to meet our energy needs, we need to “drill, baby.” The key to housing should be “build, baby,” as a builder like Trump surely knows. That means dramatically expanding training to resupply the construction workforce. In 2023, a bipartisan group of senators introduced the National Apprenticeship Act to boost funding for trade and technical training programs, but it has gone nowhere. Some in Congress have also called for shifting subsidies from four-year colleges toward revitalizing trade education. Trump should keep pressing for ways to reinvigorate the skilled trades.
There are other ways to unlock construction. Trump has already suggested selling portions of the vast federally owned land portfolio to homebuilders and letting them bypass the cumbersome, expensive local zoning and permit rules that slow projects and increase the cost of starter homes. He should press ahead with that plan, especially with a Republican Congress.
Trump could also use federal housing funds to spur local reform by revising allocation formulas to reward municipalities that build the most. Right now, some of the biggest recipients of federal dollars spend enormous sums on extravagantly expensive “subsidized” housing; they are essentially being rewarded for inefficiency.
The 50-year mortgage is a short-term political fix for a problem that demands deeper, more serious solutions. If any president should grasp that, it’s Trump. For the next three years, his motto ought to be simple: build, baby.
Photo: panaya chittaratlert / E+ via Getty Images
