‘Affordability’: Consumer Concerns and Government Proposals

Affordability has become one of the most salient political buzzwords. So what's driving concerns about the cost of living and how likely and how effective might attempts to address these concerns be? I'm Allison Nathan, and this is Goldman Sachs exchanges. Today, I'm sitting down with two of my colleagues in Goldman Sachs research. David Miracle is chief US economist, and Alec Phillips is chief US political economist. David, Alec, welcome back to Exchanges.

Thanks, Allison. Thanks.

So, David, first to set the stage for us, again, we're hearing a lot about affordability these days. But what does the economic data actually say about affordability and how it has evolved?

Yeah. So at first glance, it might seem a little bit surprising that this has become a big political theme. For one thing, real income, how much spending power you have adjusted for inflation, is more or less back on its pre pandemic trend, not just in aggregate, but across all of the different income quintiles, at least on average as well. So if in 2019 you had known where we were going to wind up, you wouldn't necessarily have thought that all of the extraordinary things that have happened over the last few years the pandemic, the inflation surge, has happened. Where we are right now in term

But let me just ask what might be just a very basic question. But why does housing affordability really matter? Because it's been a problem for a while now?

No, it's a completely fair question. You could say if people, especially people who rent, can afford to consume what they could afford before, and in fact more than that, if their spending power has grown at the normal normal rate, then why is it a problem that one particular item in your consumption basket is increasingly expensive, if on average, over across all the things you buy, you're just as well off? I think the answer is that housing, especially owner occupied housing, is special in two senses. One, especially for lower income households, housing is the primary, in some cases the only

So housing might be the exception, but it's an important exception that has real implications.

That's right.

I might ask you more about that, David. But let me turn to you, Alec, because obviously affordability has become a key part of the platform for the administration. They're talking about it a lot heading into the midterms, the main event this year. When you think about how the administration is framing this affordability problem, which, as David just said, is potentially narrower than a lot of people assume, are they framing it as a cost of living problem, a wage problem? What's the administration's take on it?