Executive summary
Housing has become the first rung Americans cannot reach. Across most of the country, typical incomes can no longer support typical home prices, and renters face the same squeeze as landlords pass higher land and financing costs into monthly payments.[1]
The core claim in this article is straightforward: demand matters, but persistent supply constraints are the decisive driver of the long-run affordability crisis. When large shares of urban land are legally reserved for detached single-family homes, and when approvals turn routine projects into multi-year political fights, prices rise until only higher earners remain.[2]
I. Introduction: The American Dream Priced Out
In our last piece, we looked at how a single national policy tool can ripple through local life, raising costs and quietly taxing households that never voted for it. Housing is the same story at a larger scale. The choices embedded in zoning codes, permitting offices, and state legislatures determine whether a city is livable for a median family.
The housing crisis is now big enough to reshape life decisions. People delay moves, family formation, and career changes because the cost of finding an acceptable home has become prohibitive. The problem hits renters and buyers alike.
II. By the numbers: how bad is it?
After declining briefly in 2023, the national median home price rose again relative to income in 2024. The Joint Center for Housing Studies reports the national median single-family home price reached roughly five times median household income, nearly matching previous record highs.[3]
Two additional measures help translate that into lived experience.
- Cost burden is widespread. The Census Bureau tracks the share of households paying a large fraction of income for housing, both for renters and for homeowners with mortgages.[1]
- The market is structurally tight. Freddie Mac estimates the U.S. is short millions of housing units, consistent with other estimates that vary by methodology.[4][5]
Charts
Home prices are historically high relative to incomes (JCHS)
What to notice: the price-to-income ratio is back near historic extremes. In a tight market, “normal” incomes do not catch up on their own.
Home prices vs. median household income (FRED graph)
What to notice: prices and incomes do not move together. When supply is constrained, the gap becomes persistent instead of cyclical.
Census ACS-61 (2023) — includes figures on housing costs and cost-burden
Freddie Mac November 2024 Chart Book (includes housing starts and supply charts)
Chart sources:
- JCHS figure comes from the Joint Center for Housing Studies article (price-to-income ratios).[3]
- FRED graph is generated from the linked FRED chart page.[6]
- Cost-burden and housing cost figures are from Census’s Housing Availability and Affordability: 2023 (ACS-61) report.[10]
- Supply context charts are from Freddie Mac’s November 2024 Chart Book.[11]
Why these numbers matter: a high price-to-income ratio is not just a homeownership problem. It is an economy-wide affordability tax, because land scarcity raises rents, commutes, and local wage demands.
III. Root causes: why supply can’t meet demand
A. Zoning and land-use restrictions (the keystone constraint)
In many large U.S. metros, the dominant pattern is simple: most residential land is legally reserved for detached single-family homes. The Urban Institute summarizes evidence that these constraints are widespread and strongly associated with high prices and low construction levels.[2]
Common restrictions include:
- Single-family-only zoning (bans duplexes, triplexes, small apartments)
- Minimum lot sizes (mandate land consumption per unit)
- Parking minimums (consume land and add substantial per-unit cost)
- Height and floor-area limits (cap units even on valuable land)
- Setbacks and discretionary design requirements (reduce usable buildable area)
These rules did not emerge in a vacuum. Exclusionary zoning in the U.S. has a long history tied to keeping lower-income households out of high-opportunity neighborhoods, and the exclusionary effects persist even where the language has changed.[2]
B. The politics of approval: delay as a de facto ban
Even when zoning technically allows new housing, permitting can make it functionally impossible. Long, discretionary review processes increase risk and carrying costs, and they create a standing invitation for organized opposition to extract concessions or kill projects outright.[2]
C. Construction costs and labor
Materials, labor availability, and building-code complexity affect prices everywhere. But those factors do not explain why some high-growth metros remain relatively affordable while others become extreme outliers. The better explanation is that costs become binding only when rules prevent supply from responding.
D. Interest rates: a secondary accelerator
Higher mortgage rates reduce affordability in the short run. But they do not explain why the crisis built throughout the 2010s (a period of historically low rates). Rates change who can buy today. Supply constraints determine what they face in the long run.
IV. What doesn’t work (or works only briefly)
Some policies are politically attractive but fail predictably unless supply constraints change.
- Rent control (as a stand-alone solution): can protect current tenants in the short run, but it can reduce new construction and maintenance over time in already tight markets.
- Demand-side subsidies without supply reform: often bid up prices when the number of units is fixed.
- Affordability mandates that do not pencil out: can reduce total production if projects become infeasible.
V. International models: places that build enough housing
Japan: Tokyo’s “build as default” framework
Tokyo is a useful counterexample because it combines intense demand with comparatively stable prices. Multiple analyses point to Japan’s more permissive, nationally standardized approach to land-use rules as a key reason it can add housing at scale.[7]
Germany: stable renting through supply and institutions
Germany pairs stronger tenant protections with substantial rental housing supply and long-lived institutions that support stable renting.
Singapore: government as developer
Singapore demonstrates that large-scale public provision can achieve affordability, though the model does not translate cleanly to U.S. legal and political conditions.
The common lesson: the places that keep major cities affordable make it normal to add housing, rather than treating new homes as a special exception.
VI. Solutions that work: evidence from U.S. experiments
A. Legalize more housing by right
Minneapolis (2019): Minneapolis eliminated single-family-only zoning citywide, allowing duplexes and triplexes on previously restricted lots.[8]
Early results suggest meaningful increases in permitted multifamily housing and a broader range of unit types, though outcomes vary year to year with financing conditions and local market cycles.[9]
Oregon (2019): Oregon required many cities to allow duplexes on most lots formerly limited to single-family homes, showing how state-level reforms can bypass local veto points.
B. Streamline permitting and reduce discretionary review
- Use by-right pathways for projects that meet clear rules.
- Set time limits (“shot clocks”) for approvals.
- Reduce requirements that do not clearly advance safety or health.
C. ADUs: “gentle density” that scales
California’s ADU reforms produced a large increase in permitted ADUs over a short period, showing what happens when rules and timelines become predictable.[5]
D. Transit-oriented development
When housing is legal near high-capacity transit, cities can grow without the same increase in commute times and congestion.
E. Public land and public capacity
Surplus public land can be converted into mixed-income housing, especially where the private market cannot produce affordable units at scale.
VII. The politics: why reform is hard
Reform is politically difficult because the benefits are broad and delayed, while the perceived costs are local and immediate. Homeowners reasonably view housing as both shelter and wealth. That creates an incentive to oppose change that might alter neighborhood character or reduce scarcity.
Durable coalitions tend to form when reform is framed around outcomes that matter to many groups at once: shorter commutes, fewer homeless encampments, lower rents, and a path for young households to buy.
VIII. Conclusion: a solvable crisis
The housing shortage is not a mystery and it is not inevitable. It is the result of policy choices that make it hard to add homes in the places people want to live.
Zoning reform is the keystone, but it is not the whole arch. A practical bundle looks like this: legalize more homes in more neighborhoods, make approvals predictable and fast, and use public capacity where markets will not serve.
If the goal is affordability, the test is simple: do we end the decade with more homes per person in high-opportunity regions than we have today? If yes, prices will bend. If no, they will not.
Sources (selected)
- Joint Center for Housing Studies (Harvard), price-to-income analysis and figures.[3]
- U.S. Census Bureau housing affordability and cost-burden data.[1]
- Freddie Mac estimate of the housing supply shortfall.[4]
- Brookings discussion of competing shortage methodologies.[5]
- Urban Institute overview of supply constraints and land-use barriers.[2]
- Minneapolis zoning reform overview (The Century Foundation) and additional policy analysis.[8][9]
- International comparison (Japan) via Sightline Institute.[7]
Next in the Cost of Living series*
- Part 2: Student Debt (why it blocks mobility)
- Part 3: Childcare (why the market fails both parents and providers)
- Part 4: Prescription Drugs (how the U.S. pricing system is engineered)
*(I’ll link these pieces as they are published)
The Rational Moderate 