If there’s one thing we can count on in America, it’s that our elected officials will see an affordability crisis and respond to it by stimulating the demand side of the market. Today, we’re seeing this in the case of the housing industry, with Administration officials floating both a new (and improved!) 50-year mortgage and a portable mortgage. Treasury Secretary Scott Bessent says that both of these will help break the “logjam” of owners who are stuck with their 3% mortgages and are reluctant to move, which will help with the affordability “crisis” in the American housing market. After all, if more houses come on the market for sale, won’t that push prices down?
This statement belies a fundamental misunderstanding of the difference between supply and quantity supplied. This distinction matters not just so students can pass their economics exam, but for understanding the actual effects of policy.
How do we use supply and demand in assessing the effects of any change? Fortunately, once you have correctly drawn a supply and demand graph, there is a three-step process for allowing anyone to “command the heights of genius” as James Buchanan once described.
- Determine: will this affect demand or supply?
- Determine: will it increase or decrease?
- Read changes in price and quantity from the graph.
The first step in understanding the impact of any change in policy is determining whether these new mortgage policies will affect the demand for housing or the supply. Let’s start with the 50-year mortgage proposal. The idea here is that this will make loans or credit easier for would-be home buyers to acquire. That is a demand-side phenomenon.
At first blush, portable mortgages seem like they would affect the supply side. After all, such a policy would make it easier for current homeowners to sell, right? However, notice that this policy only affects current homeowners who wish to move and buy a new house. Those who have a house and have no desire to move will be unaffected by this policy. As a result, this policy also affects the demand side of the housing market.
The second step in our three-step process is to determine what direction the (in this case) demand curve will be moving. Here, it’s fairly obvious: the demand for housing is going to increase, which means it will move to the right. I depict this below in the move from D1 to D2.
The final step is to read the changes in price and quantity from the graph. Here, we can see that as a result of these policies, we should expect the price to increase from P1 to P2 and the quantity to increase from Q1 to Q2. Importantly, the supply curve did not move whatsoever.
Note that what we have just shown is that Scott Bessent is correct! There will be more houses sold as a result of portable mortgages (and the 50-year mortgage). The specific point-prediction of exactly how many more is beyond the scope of the analysis here, but the pattern prediction seems obvious. But this is an increase in the quantity of houses, not an increase in the supply of houses. As a result, he is incorrect to say that this will make housing more “affordable.” It will most certainly not – housing prices will increase.
The trick to implementing this three-step plan is to do the three steps in order. People are often tempted to jump straight to step three and “get to the point.” After all, that’s what people really want to know! Some can jump straight to step three, but I’ve been a student of economics for almost 20 years now. I couldn’t even begin to venture a guess as to how many times I’ve drawn supply and demand on boards in front of classrooms, on sheets of paper during office hours, on exams that I’ve taken… you name it. I still go through this exact process every single time when I’m confronted with a new problem.
The reason why I go through this process every single time is simple: it works, and it avoids the trap of falling victim to the problem of reasoning from a price change. It also forces us to really think about what is going on in the market and to think through it clearly and carefully before we rush to any judgments about what we really care about: will this allow more people more access to a good or service? Will it allow people to live healthier and wealthier (however they choose to define those terms) or will it lead to impoverishment?
These are the questions that really matter. Using supply and demand analysis and this three-step process is a crucial component to understanding the world around us.
READER COMMENTS
Tyler A Watts
Dec 5 2025 at 12:24pm
Great post, Dave. This is a much-needed lesson in basic economics, especially for journalists and commentators who might have a bunch of facts at their disposal, but often lack proper theory to connect the dots. On a related note, I’ve found that many politicians talk about enacting policies to reduce “costs” of various goods (housing, healthcare, education), but their policies are almost always demand-side subsidies (i.e. the government pays part of the costs). As we economists know, demand subsidies shift the demand curve right; without an offsetting supply curve shift, this of course only leads to a higher equilibrium price, by inducing buyers to climb up the supply curve with their newfound spending power.
I want to live in a world where journalists, politicians, and commentators, when they talk about policies to reduce costs, use the word “costs” the way we economists do, i.e. the height of the supply curve. True cost-cutting policy must involve supply-side tools, such as lessening the regulatory burden or promoting technological innovation, that would actually lead to lower equilibrium prices!
John Hall
Dec 5 2025 at 1:42pm
Kevin Erdmann argues that government policies that reduce mortgage access post-2009 have contributed to rising home prices. It seems as if you would argue that this should be a negative impact on demand, which should lower house prices. However, over the long-run it can have an impact on supply.
Dave Hebert
Dec 5 2025 at 9:23pm
I’d have to see a lot of the specifics of his claims to comment one way or another. Right now, all I know is that Erdmann says that when there are fewer mortgages available, the price of housing falls. That can be true but it can also be false. Depends on whether the policy Erdmann is pointing to decreased the demand for mortgages or the supply of mortgages.
There can also be other, mitigating factors at play given that the housing market writ large was still coming out of the whole housing bubble bursting thing at that time.
Robert EV
Dec 6 2025 at 8:03pm
With portable mortgages the access to mortgages already exists, it just that now a fraction of the public has access to cheaper dollars than first-time homeowners or second home buyers with paid-off mortgages.
These portable mortgage people will still have to sell their own house at a price that will cover at least what they currently owe on the mortgage (or take out a second mortgage at higher rates), but will also be able to overbid new home buyers, thus ultimately boosting the price of housing.
And from what I’ve seen elsewhere, when it comes to building equity and monthly payments, 50 year mortgages basically don’t pencil out better than 30 year mortgages. So I don’t see these really increasing access to mortgages.
Robert EV
Dec 6 2025 at 8:05pm
Sorry, I argued tangential to the point you were making.
Robert EV
Dec 6 2025 at 7:56pm
You don’t understand.
Intimidate our southern neighbors through the use of force to stop drug smuggling.
This makes drugs cheaper in their countries of origin through artificial demand destruction.
Fewer drugs in the US means the drug addicts will want to move south to where the drugs are.
With portable mortgages as well as intimidated southern neighbors, they will be able to do so with impunity (and no need for those pesky visas, as governments down south don’t want to get on the USA’s bad side).
Pardon notorious drug traffickers.
As the drugs are cheaper down south, and living expenses in general are, these new ‘expatriates’ can set themselves up as drug kingpins.
When they start getting caught by the police and then pardoned by Trump, this will encourage even more people to move south to become drug kingpins.
Finally, housing becomes cheaper in the US!
Obviously a joke, but yes. It’s self-evident that making it easier for a cluster of purchasers to buy increases demand for houses. And that by making it easier for relatively wealthy purchasers to buy (e.g. those who already have a mortgage, and thus presumably some equity as well), the effect of this demand increase on prices will not be fully offset by a corresponding supply increase (actually a wash) a few weeks or months later (people rarely sell their houses before they’ve bought a new house).
I have long thought that something like a portable mortgage would be a good alternative for some renters, though. Especially for those who can’t guarantee that they’ll stay in the same region over the course of a career. The hard part, of course, is qualifying for the mortgage in the first place. E.g. from the article: “Portability lets you keep your low rate; it doesn’t make the first house cheaper or build new homes.”
I do wonder what job market effects would happen from those who can theoretically afford to move to a new job.
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