Housing Affordability: America’s Short-Term Crisis and Long-Term Problem

Introduction

A steep rise in inflation since 2021 has triggered an affordability crisis, and especially a housing affordability crisis, in the United States. A new poll by The Heartland Institute’s Glenn C. Haskins Emerging Issues Center and Rasmussen Reports finds “Seventy-four percent of young Americans, including 70% of self-identified conservatives, believe the ‘cost of housing in America has reached a crisis level.’ More than half (56%) of self-identified conservatives would support a congressional proposal to expand government housing and impose a nationwide rent freeze.”

These proposed solutions will succeed only if the diagnosis is correct. To diagnose the problem, we must ascertain what is driving up housing prices as a percentage of real incomes. The reality is that monetary inflation in the early 2020s aggravated a long-term housing affordability crunch and turned it into a housing crisis. Reducing inflation will alleviate the short-term crisis. The nation must then turn to the long-term problem: a stagnant supply of housing.

The Housing Affordability Gap

Housing costs crossed the line into unaffordable territory in the United States in May 2021.

Other factors raised the cost of owning a home even further in this time of high price inflation: increases in utilities costs, homeowners’ insurance, property taxes, repairs, renovations for work at home, association fees, and more.

The steep rise in housing prices that began in 2021 was acute, and it has yet to recede. Those with the least wealth feel the effects most powerfully, of course. Americans aged 35 to 45, when first-time homebuying rises the most, have found more difficulty in buying a house than prior demographic groups have experienced.

The percentage of first-time home buyers in the United States has collapsed since 2021, notes real-estate analyst David Bitton at Doorloop:

• 2021: First-time buyers ~34% of purchases.
• 2022: Down to 26%.
• 2025: Just 21% – a record low.

This collapse shows rising down payments, high monthly costs, and strict underwriting are keeping new homebuyers out of the market.

The average age of a first-time U.S. homebuyer is now 40, a record high, and it costs a first-time homebuyer an average of $150,000 in missed equity compared with buying at age 30.

That makes everything less affordable for such households. Unaffordable housing has created a general affordability crisis for young adults in nearly all areas of life in the United States.

Inflation-Adjusted Housing Prices

The Case-Shiller Index illustrates real (inflation-adjusted) housing prices against a baseline of the year 2000. Prices rose rapidly during the pandemic.

The rises in housing prices per square foot after 2022 have not been unusually high, however, as overall price inflation has moderated.

The price of housing per square foot began rising rapidly in 2020 and has not come back down. Higher housing prices were not primarily caused by increases in the size of houses built. In fact, builders have been reducing the average size of new houses since the 2022–2023 inflation burst. Dollar devaluation through inflation was the big factor in the rapid increase in prices per square foot.

Average Interest Rate on a 30-Year Mortgage

Most American homeowners take out a mortgage to pay for their home: 62 percent of U.S. homeowners had mortgages in 2021. As a result, mortgage interest rates have a powerful effect on the ability to buy a house.

The Federal Reserve’s hikes in the federal funds rate, intended to fight inflation, pushed up consumer interest rates after 2021, including mortgage rates.

The increase in mortgage interest rates in early 2022 was extraordinarily rapid and has persisted.

The average interest rate on a fixed-rate 30-year mortgage is within historical norms, though it rose rapidly during this period and has yet to return to the historically low rates of the dozen years after the Great Recession.

Higher mortgage interest rates increase housing costs, which is especially burdensome for young people, who generally have lower incomes than they will enjoy in later years.

Rising Rents

The average rent paid in the United States in early 2026 was $1,698 per month, a 29.8 percent increase over five years, after a 31 percent increase from 2019 to 2025.

Zillow’s methodology showed the average monthly rent in the United States to be $1,995 in February 2026.

Those who cannot afford a down payment, monthly mortgage payments, and all the other expenses of owning a home must rent. An increase in the number of renters raises rent prices, absent a corresponding rise in the supply of housing.

Higher Cost, Same Size Apartment

As supply stays relatively constant and demand increases, prices per square foot rise. U.S. apartment prices per square foot have risen rapidly since 2021.

Rent prices were not rising because of an increase in the size of rental apartments. Dollar devaluation via inflation pushed rent costs up without providing better accommodations for renters.

Historical Homeownership Rate

As housing prices rose starting in 2021, the percentage of Americans living in self-owned homes remained steady. The homeownership rate in the United States was 65.7 percent in October 2025.

The overall rate of homeownership has stayed within a narrow range since the mid-1960s.

Housing Supply Growth

On the supply side, expansion of U.S. housing has been poor since the Great Recession.

Building of new residences crashed after the 2008 housing crisis and has yet to return to its historical average. The supply of housing in the United States is much lower than it would be if construction rates had remained normal.

U.S. Population Growth

A rapidly rising population has put pressure on all resources in the United States since 2000, including housing.

During the past quarter-century, the U.S. population has grown by 22 percent, from 281 million in 2000 to about 343 million in 2025.

Demographic Bulge of Young Adults

The Millennial generation and Gen Z entered the workforce and housing markets in large numbers in the 2000s, a process that accelerated after 2020.

As a result, the number of households in the United States has been increasing more rapidly than usual since 2024.

This surge in demand, combined with slow supply growth, has placed upward pressure on housing prices.

Sharp Rise in Inflation

Inflation rose quickly during the first years of the Biden administration.

In 2021, price inflation in the overall U.S. economy increased rapidly.

U.S. Federal Spending and Annual Budget Deficit

Federal spending and the annual budget deficit rose significantly beginning in 2021.

This increase created a higher long-term spending trendline, financed by increased government debt.

Changes in the Money Supply

The Federal Reserve rapidly expanded the money supply in 2021, greatly increasing the number of dollars circulating in the economy.

This expansion contributed to rising prices across housing and other goods and services.

Relationship Between Spending and Inflation

Inflation began receding in mid-2022 after federal spending fell and monetary policy tightened.

Although inflation has slowed, it remains above the Federal Reserve’s target.

Housing prices have moderated slightly but remain elevated.

Conclusion

Inflation has hit working people hard in recent years. Costs for goods and services remain significantly above 2020 levels.

The affordability crisis, especially in housing, is the result of both a short-term inflation surge and long-term supply constraints.

Reducing inflation can ease the short-term crisis, but solving the long-term problem requires increasing housing supply.

The solution to the long-term housing problem is simple: build more houses. However, this will not occur unless barriers to construction are reduced and property rights are strengthened.

Significantly reducing obstacles to economic growth would allow expansion of the housing supply and improve affordability.