Regulations are making homes unaffordable … around the world!

Next to inflation, Americans ranked housing as their top financial worry in a Gallup survey last May. It’s only gotten worse. January home sales were down 5% from last year’s dismal numbers. Record numbers of first-time buyers are stuck on the sidelines as housing affordability stands at the lowest level ever recorded, while one in three Americans now spend over 30% of their income on mortgage or rent.

The housing crisis is not just an American problem, but a global phenomenon that hits the middle and working classes the hardest. Studies of the Canadian, British, European, and East Asian markets have also found that housing prices have risen far faster than household incomes and inflation. A report from the Organisation for Economic Co-operation and Development concluded that “housing has been the main driver of rising middle-class expenditure.” In prosperous and communitarian Switzerland, Zurich studios sell for well over $1 million, and small houses even more, making downpayments unaffordable to affluent people despite the overwhelming financial advantages to homeowners.

Underlying the plight of home buyers worldwide is a sometimes overlooked but profound influence – the spread of restrictive land-use regulations. It’s reshaping political and economic alignments in ways that may further destabilize the social order. Home ownership is strongly correlated with positive social indicators, and as renting grows twice as quickly as buying, this trend poses a threat to Western democracy by deepening economic inequality, depressing demographic vitality, and undermining the upward mobility that has driven Western progress for the past century.

Cost of Over-Regulation

The price increase may seem surprising because there has not been a huge spike in fundamental demand. In California, and most of the United States, as well as Europe and East Asia, population growth is tepid, if not declining. Today’s higher interest rates are below those that prevailed from 1970 to 1995, when housing costs were considerably lower relative to incomes. Nor is this predominantly a technical problem; the rise of remote work, which is connected to migration to smaller metros, as well as new technologies for building, including using 3D printers, actually offers the chance to build more cheaply.

And yet, the principal cause for housing shortages and rising prices stems from the failure to build enough new housing units, particularly the single-family homes consumers most desire. Homebuilders built 1 million fewer homes (including rental units) in 2024 than in 1972, when there were 130 million fewer Americans. One estimate puts the U.S. housing market shortage at an estimated 4.5 million homes, according to Commerce Department data.

The rapid inflation of housing costs stems primarily from ever more constricting land-use regulations. Inflated prices are particularly rife in countries and states with strict regulations like California, where high-income households now utterly dominate the housing market, and more than a third of all real estate transactions in recent years topped $1 million.

At the crux of the problem is a series of housing policies referred to as “urban containment.” First implemented in Britain at the end of the Second World War, urban containment policies typically seek to manage growth by imposing boundaries or greenbelts around urban areas, outside of which new development is either prohibited or severely limited.

Decades ago, there was ample land within these boundaries, but this has changed as population growth has stimulated more demand. The simple fact is that once the urban limits are reached, land prices along the boundaries – the suburbs and exurbs – and in the areas still open to development inevitably rise. This mimics the effects of the 1970s gasoline embargoes that drove prices through the roof – and is nothing more than basic economics. Rationing tends to increase prices.

To this flawed approach, many jurisdictions have imposed other costs such as high-impact fees, lengthy environmental reviews, minimum parking mandates, and historical preservation designations. But generally, nothing quite compares with urban containment, as it drives up land costs by restricting development on the periphery, where land prices are the lowest.

In almost all cases, the highest housing prices occur in markets that are characterized by this planning strategy. This includes all markets in Australia and New Zealand and many in Canada, the United Kingdom, the U.S., Western Europe, and China. In the U.S., the worst housing inflation has been in California, Oregon, Washington, Hawaii, and Colorado, all states that apply the tightest large regulatory noose around new developments, particularly on and beyond the urban fringe.

The connection between policy and prices is clearly evident. As late as 1970, only a few markets were shaped by urban containment. As its influence grew, so did prices. As late as about 1990, national price-to-income ratios were “affordable,” at three or less in Australia, Canada, Ireland, New Zealand, the U.K., and the U.S. Today, the median multiple in these countries tends to be over five. But the worst results, as seen in most recent Demographia International Housing Affordability Study – Hong Kong, Sydney, San Jose, Vancouver, Los Angeles, Adelaide, Honolulu, San Francisco, Melbourne, Brisbane, as well as Greater London, are at a remarkable nine or above.

Perhaps counterintuitively, higher density development – often seen as the alternative to “sprawl” – does not lower prices, as is sometimes suggested. In fact, U.S. data suggests a positive correlation between greater density and housing costs. Among 53 major metros, those with more single-family housing and larger lot sizes (key indicators of lower density) have substantially better housing affordability. The effects of density-focused policies on people and regions are profound. One study found the median family in San Jose or San Francisco would need 125 years (150 in Los Angeles) to save enough money to afford a down payment on a median-priced home; in Atlanta or Houston, the figure is 12 years.

Highly restrictive planning policies also impact renters. A recent RAND study of California found that policy-driven delays, strict architectural standards, green mandates, and the requirement to pay union-level wages have increased the cost of construction of subsidized apartments twice as much as in Texas, while taking almost two years longer to get approved. Portland, Ore., a pioneer in urban containment, embraces high-density housing, but high prices have driven multifamily construction to the lowest level in a decade.

Collapse of the Dream 

Urban containment and other planning policies have devastated middle-class aspirations in every country or region that adopts them, even in countries like Australia, which enjoy a vast land mass and a smallish population. Australian cities once characterized by family-friendly neighborhoods are now dominated by dense apartments and condominiums.

Planning regulations now add 55% to the price of a home in Sydney, according to a recent Reserve Bank of Australia study. In greater Sydney, the median home price recently passed A$2 million (approximately US$1.3 million). This is higher relative to incomes than in Los Angeles, London, New York, Singapore, and Washington. Even Adelaide, geographically isolated and far from a dynamic global business locale, has higher prices, based on income, than Seattle, one of the world’s most dynamic tech hubs. According to projections from the Urban Taskforce, apartments will make up half of Sydney’s dwellings mid-century, whereas only one quarter of Sydney dwellings will be family-friendly detached homes.

Young people are most impacted by this policy regime. In the U.S., homeownership for people under 35 has fallen fairly steadily since the Great Recession of 2008 and is now half that of people over 45. Similarly, in Australia, the percentage of households aged 25 to 34 owning homes has dropped from more than 60% in 1981 to only 45% in 2016.

Similar trends are seen in other high-income countries, including Ireland, where only a third of millennials own a home, compared with almost two-thirds of baby boomers when they were the same age. At least one-third of British millennials are likely to remain renters permanently.

Much of the same is occurring in the U.S. Whereas in 1969, the median price of a home cost about five years of a young adult’s income, today it costs nearly nine years. A new Institute for Family Studies report, “Homes For Young Families: A Pro-Family Housing Agenda,” says that since 1970, the share of young adults who own the home they live in has declined from 50% to around 25-30%.

Ignoring Preferences 

In advocating such urban containment and other high-density housing policies, planners, backed by academia and most big media, set themselves against the overwhelming preferences of the public for less density and more spacious housing. Judge Glock, who is now affiliated with the Manhattan Institute, has noted that in Census Bureau data since 1950, the average density of the major continuously built-up urban areas has dropped from 6,000 people per square mile to 3,000. In recent years, smaller metropolitan areas have been growing the fastest, while net domestic migration is away from areas of higher density to areas of lower density. 

Since 1950, the share of U.S. population in core cities has fallen from 24% to under 15%. Even in California, despite government resistance, virtually all the growth over the last decade has been in farther-flung suburbs. As elsewhere, the preference for single-family homes is “ubiquitous,” according to recent research by Jessica Trounstine at the University of California, Merced. “Across every demographic subgroup analyzed,” she observes, respondents preferred single-family home developments by a wide margin. Relative to single-family homes, apartments are viewed as “decreasing property values, increasing crime rates, lowering school quality, increasing traffic, and decreasing desirability.”

Once, it was widely suspected that young people would head to big core cities like New York, San Francisco, Seattle, and Denver. But surveys reveal that nearly three in five younger people see homeownership as an essential part of the American dream, while two-thirds favor suburbs as their preferred residence. Three out of four Californians, according to a poll by former Obama campaign pollster David Binder, opposed legislation that banned single-family zoning.

A big driver of suburban growth is minorities and immigrants. In the 1950s and 1960s, mass suburbanization was widely associated with “white flight” and discrimination against minorities. But in the past decade, over 90% of all suburban growth in the U.S. came from minorities; currently, more than three-quarters of all African Americans, Hispanics, and Asians in major metropolitan areas in the U.S. live in the suburbs. Similar patterns are also evident in Canada, Australia, and the U.K.

Today, most high-income countries are primarily suburban. A Statistics Canada analysis of 2021 census results indicates that more than 75% of the population lives in the suburbs, which absorbed more than 80% of the growth between 2016 and 2021. Even in transit-rich and land-short Japan, residents of Tokyo, Osaka, and Nagoya are dispersing away from the urban core to suburban and exurban areas after these cities nearly monopolized national population growth over the previous decade. Much the same can be said of Seoul, South Korea, which is even denser than the Japanese megacities. An analysis of the 53 U.S. major metropolitan areas finds that more than 85% of residents live in suburban or exurban neighborhoods and that more than 90% of the population growth since 2010 has been in the suburbs and exurbs.

These choices underscore an analysis of Canadian poll results by Sotheby’s, which suggests a “disconnect” between urban planning and consumer preferences: The “picture is of young urban families overwhelmingly preferring detached houses, and decidedly not the condominiums into which planners are driving them.” As Sotheby’s puts it, “The report dispels myths about young, urban families’ housing preferences.”

Among Americans under 35 who do buy homes, four-fifths choose single-family detached houses. According to a recent National Homebuilders Association report, over 66%, including those living in cities, prefer a house in the suburbs. Almost two-thirds of U.S. millennials (25 to 44) favor being owners, which is also the case in the United Kingdom, Australia, and Canada. The future vision of the planners has little attraction among the public.

Upward Mobility or Neo-Feudalism?

Whatever their desires, without an affordable home, millennials and Gen Z will face a formidable challenge in boosting their net worth. Homes today account for roughly two-thirds of the wealth of middle-income Americans; homeowners have a median net worth more than 40 times that of renters. Not surprisingly, most young people still believe in creating wealth through ownership.

Yet rather than allowing for greater dispersal of wealth, as was the case in previous decades, the decline of housing affordability is a critical factor driving inequality, notes a recent study by Bank for International Settlements (Berne) economist Gianni La Cava. In more historically feudal Great Britain, land prices have risen dramatically over the past decade, and less than 1% of the population owns half of all the land. On the continent, farmland is increasingly concentrated while urban real estate has fallen into the hands of a small cadre of corporate owners and the mega-wealthy. The left-wing economist Thomas Piketty has identified high housing costs as a driver of increasing inequality even in purported social democracies like Germany and France.

This is also the case in the U.S., where about 71% of the increase in housing wealth between 2010 and 2020 was gained by high-income households, according to the National Association of Realtors.

Increasingly, home ownership relies on the classic feudal formula – being born into “the funnel of privilege.” In the U.S., millennials are three times as likely as boomers to count on inheritance for their retirement. Among the youngest cohort, those ages 18–22, over 60% see inheritance as their primary source of support as they age. In high-price markets like Los Angeles and Orange County, California, close to 40% of loans rely on family money for qualification, up from 25% in 2011.

Threat to Democracy 

Most democratic or republican societies in history – in Athens, Rome, the Netherlands, Britain, France, North America, Oceania – were created and sustained by a broad property-owning middle class.

In the twentieth century, middle-class asset growth was accomplished in large part by the expansion of an urban footprint beyond the city core, allowing many more citizens to buy property in spacious, safe environments offering a measure of privacy. The ideal of broadly dispersed property ownership has long been promoted by politicians, both right and left, in most high-income countries. “A nation of homeowners, of people who own a real share in their land, is unconquerable,” said President Franklin D. Roosevelt. He saw homeownership as critical not only to the economy but to democracy and the very idea of self-government.

Today, the trend towards democratization of landownership is being reversed, with more and more people being pushed into living in rented apartments or houses, with little chance of gaining financial independence. An economy where most people rely upon wealth transfers from the more fortunate cannot easily coexist with a tradition of individual initiative and self-governance.

At the very least, the drive to create lifetime renters and forced densification sets a stage for a future political conflict and social disruption, particularly for the younger generation. In a Harvard poll of 18- to 29-year-olds this year, housing ranked as the third-most important issue overall, after inflation and health care. In California, almost 70% of residents consider housing costs a major concern, while in Britain, housing rose to be one of the top five issues for voters, well ahead of defense, security, poverty, and crime.

The housing affordability crisis impacts a host of life decisions. Studies of the U.S. have found that higher house prices had a direct impact on the decision of couples to have children. Research in Germany and across 18 European and North American nations also found that high housing prices defer family formation, leading to lower fertility as well as marriage rates, particularly among the working class. On the flip side, a new study by the Federal Reserve Board reports that homeowners are not only more affluent than renters, they are also physically and mentally healthier, vote more often, and their children achieve higher levels of education.

Many advocates of forced densification and renting justify their views around “green” and “sustainability” concerns. The environmental magazine Grist has envisioned “a hero generation” that will escape the material trap of suburban living and work that engulfed their parents. One magazine editor proudly declared herself a part of the GINK generation (as in “green inclinations, no kids”) that she said meant not only a relatively care-free and low-cost adult life, but also “a lot of green good that comes from bringing fewer beings onto a polluted and crowded planet.”

Less motivated by planetary concern, major Wall Street investors are also focusing on crowding people into small spaces and a life of permanent rentership. Britain’s Lloyds Bank and BlackRock have placed multi-billion-dollar bets on buying homes for the rental market. In the first quarter of 2021, investors accounted for roughly one out of every seven homes bought, a marked increase from previous years.

A notion embraced by some financial groups as well as greens is one of a rentership society where people remain renters for life, enjoying their video games or attending to their houseplants, never knowing the pleasure of having a real garden or backyard of their own. It might assure a steady profit for the landlord class, but it would destroy the dream of ownership for the average person. The broader effect may resemble a modern form of feudalism, where both inherited wealth and institutional ownership, often the Church, concentrate control over housing.

Need for Reform

If unchecked, the pattern of declining ownership and rising prices for housing could shape the politics of the future, particularly among young people. Not surprisingly, many renters tend to favor leftist policies such as rent control and housing subsidies. The development of a class of permanent renters seems ideal for fomenting class warfare directed at an ever-shrinking number of owners, by a vast majority with no real assets, and little chance of getting any.

Ultimately, the battle over land and property will define our future. We either accommodate hope among those in the next generation or force them to accept a lifetime of rental serfdom and permanent subservience to the state, or big capital, or both.

As Conor Dougherty of The New York Times put it, “For all the focus on billionaires and stock prices, it’s home values that are a primary source of wealth inequality and the root of a generational schism between the housing-rich baby boomers and young adults today.” He quotes Edward Glaeser, a premier housing economist at Harvard, who said that the housing crisis has become “a huge hindrance on the quest for well-being and the pursuit of happiness.”