Consider a riddle: What sounds like inflation but isn't, and is nearly impossible to disprove with data showing inflation has cooled? It's “affordability,” the Bête noire of current politicians and the emerging political buzzword for 2025—and possibly much longer.
TL;DR
- Affordability is a political buzzword winning elections, distinct from inflation, and difficult to disprove with data.
- Politicians leverage affordability, a personal assessment, as a political tool rather than an economic metric.
- Social media fuels resentment by displaying idealized lifestyles that people cannot afford, intensifying the issue.
- Affordability focuses on specific large expenses like housing, creating voter discontent even when general inflation cools.
Affordability emerged as the central message of the Democratic Party's decisive win in the November midterm elections, with progressive Zohran Mamdani of New York and moderates Mikie Sherrill of New Jersey and Abigail Spanberger from Virginia highlighting its significance. Most recently, the Mamdani-esque Katie Wilson of Seattle, a 43-year-old who had never held public office, leveraged the issue of affordability to achieve a surprising triumph in the mayoral contest of the Emerald City.
On Friday, prominent economist Paul Donovan from UBS cautioned that the phrase “affordability” represents an ambiguous notion, and those politicians currently gaining from it might find themselves opposing it in the future. Its inherent nature is to disadvantage those in power. Donovan points out that affordability is a highly personal assessment, frequently employed as a political instrument rather than a factual economic metric. Politicians aiming to attract voters often feel compelled to offer remedies, even if these pledges are founded on vague or fluctuating standards influenced by online discourse.
Social media platforms have become potent, addictive forces, intensifying a perilous sense of FOMO. This can also shape views on the economy.
Donovan, global chief economist for UBS Wealth Management, stated on his weekly blog that “Affordability also includes some kind of aspiration,”. “People want things (generally ‘better’ things than they currently have) and are upset that they cannot afford those things.”
He stated that when social media displays an idealized picture, this “fuels resentment about a lifestyle that cannot be afforded.” He cautioned that the issue of affordability, and consequently the politics surrounding it, might prove to be a more persistent challenge than previously, remaining ingrained in the culture.
Prices may be low, but costs still high
Donovan states that the sentiment “I cannot afford that” is currently a key driver of anger, stemming from an emotional reaction to the economy that clashes with evidence suggesting inflation might have actually decreased based on past data.
“While inflation is a general increase in prices, affordability is normally directed at specific, large expenses such as home ownership. Consumer price inflation is a plutocratic statistic, biased toward high income groups’ spending patterns,” he explained. “Affordability, being political, is democratic.”
Even when inflation isn't soaring according to economists' measurements, the public's perception of rising prices can still provoke voter discontent. Sean Dobson, CEO of Amherst Group, sought to clarify this phenomenon during a recent discussion with Coins2Day, noting that the inflation rate calculated by The Federal Reserve contrasts sharply with consumers' lived experiences.
“They [the Fed] measure the inflation at the time it’s felt by the consumer,” he said on the sidelines of the ResiDay conference in New York, meaning that inflation can be relatively stable month-over-month from a statistical perspective, but if someone needs to rent a new apartment or buy a house, they get sticker shock from how much prices have gone up over several years, due to spurts of inflation that are now in the recent past. “So, everyone’s right that the Fed is late because the actual economy’s going down [in inflation], the rent growth’s going down a while ago. But that rent growth doesn’t hit everyone in real time.”
According to Dobson, from The Fed's viewpoint, “they can’t make policy based on a projection. They have to do it based on the hard, backward-looking data.” However, consumers felt no inflation for approximately three consecutive lease renewals, and then when their lease was up for renewal again, “the same house cost 100% more. But in between that was all the gradual inflation that wasn’t measured.”
Onstage at ResiDay, a member of the Trump administration sounded angry at this dynamic. Bill Pulte, director of the Federal Housing Finance Authority, called into the conference and argued forcefully that inflation is cooling in the data, and the Federal Reserve is blind to the plight of most Americans’ affordability concerns. Federal Reserve Chair Jerome Powell isn’t “not looking at the data” which shows that “inflation is way lower.” The high mortgage rates above 6% are “really hurting a lot of people,” Pulte added. “It’s sad.”
In just a few days, Pulte praised a government program as a “game-changer”: the concept of a 50-year mortgage, proposed as a way to reduce housing costs. Various forecasts questioned this notion, such as a UBS calculation indicating that a half-century mortgage would reduce monthly payments by approximately $119, yet the total interest paid over the loan's duration would be nearly twice that of a 30-year mortgage.
“It is tempting to think of affordability as another version of the ‘cost of living crisis’—but affordability is subtly different, and may linger,” Donovan at UBS said.