The Housing Affordability Crisis Explained: Why Homes Cost So Much in 2026

The median home price in the United States is roughly $400,000. The median household income is approximately $80,000. That means the typical home costs about 5 times the typical household's annual income.

In the 1980s, that ratio was closer to 3-to-1. In expensive coastal markets today, it's 8-to-1, 10-to-1, or even higher.

Something broke. This article explains what, why, and what it means for you.

The Scope of the Problem

Let's put some numbers on this so we're all on the same page.

The Income-Price Gap

• 1990: Median home price ~$79,000. Median household income ~$30,000. Ratio: 2.6x.
• 2000: Median home price ~$119,000. Median household income ~$42,000. Ratio: 2.8x.
• 2010: Median home price ~$173,000. Median household income ~$49,000. Ratio: 3.5x.
• 2020: Median home price ~$296,000. Median household income ~$67,000. Ratio: 4.4x.
• 2025: Median home price ~$407,000. Median household income ~$80,000. Ratio: 5.1x.

Home prices have grown roughly 3 times faster than incomes over the past 35 years. That's the affordability crisis in one statistic.

What Affordability Looks Like Monthly

On a $400,000 home with 10% down, a 6.5% mortgage rate, property taxes, and insurance, the typical monthly housing payment is approximately $3,000-$3,300 depending on location.

For a household earning $80,000 (roughly $6,700 per month gross), that's 45-50% of gross income going to housing. Financial advisors recommend keeping it under 30%.

That means the median American household literally cannot afford the median American home by conventional standards. Let that sink in.

Why Homes Cost So Much: The Seven Root Causes

The affordability crisis isn't caused by one thing. It's the result of multiple forces compounding over decades. Here are the real drivers.

1. We Stopped Building Enough Homes

This is the biggest single factor, and it's not close.

The United States has been underbuilding housing relative to population growth and household formation for over 15 years. According to Freddie Mac, the national housing deficit reached approximately 3.8 million units by 2021. Other estimates put it even higher — the National Association of Realtors estimated 5.5 million units in 2023.

Why did building slow down?

• The 2008 crash devastated the construction industry. Homebuilding collapsed from 2.1 million annual starts in 2005 to just 554,000 in 2009. Builders went bankrupt. Skilled workers left the industry and never came back.
• Recovery was slow. Housing starts didn't return to 1.5 million annually (roughly the replacement rate) until 2020-2021. That's over a decade of underbuilding.
• The labor shortage is structural. The construction workforce peaked at about 7.7 million in 2006. It dropped to 5.5 million by 2011. Even by 2024, it hadn't fully recovered. The average age of a construction worker is over 40, and younger workers aren't entering the trades at replacement rates.
• Material costs have surged. Lumber prices spiked 300% during the pandemic (though they've since moderated). Concrete, steel, copper, and other building materials have all seen sustained price increases. The cost to build a home has risen roughly 30-40% since 2019.

The math is simple: when you build fewer homes than people need, prices go up. We've been doing this for over a decade, and the cumulative deficit is enormous.

2. Zoning and Land-Use Regulations

Zoning laws were originally designed to separate industrial pollution from residential areas. Reasonable enough. But over the decades, they've evolved into powerful tools for restricting housing supply.

The problem with exclusionary zoning:

• Single-family zoning dominates. In many American cities, 70-80% of residential land is zoned exclusively for single-family homes. In cities like San Jose, it's been as high as 94%. This makes it illegal to build duplexes, triplexes, or apartment buildings on most residential land — even when the market desperately needs more housing.
• Minimum lot sizes inflate costs. Requiring half-acre or one-acre minimum lots in suburban areas means fewer homes per acre, which means higher land costs per unit, which means higher home prices.
• Parking minimums add cost. Many jurisdictions require 1-2 parking spaces per housing unit. A structured parking spot costs $25,000-$50,000 to build. A surface spot consumes valuable land. These costs get passed to buyers and renters.
• Height restrictions limit density. Caps on building height prevent construction of the apartment buildings and condominiums that could house more people on less land.
• The permitting gauntlet. In high-cost states like California, the permitting process for new housing can take 2-5 years and cost hundreds of thousands of dollars in fees, consultants, and legal expenses before a single shovel hits dirt. Environmental review (CEQA in California, SEQRA in New York) is frequently weaponized by opponents of new housing.

The NIMBYism feedback loop: Existing homeowners benefit from restricted supply — it pushes their property values up. They show up to city council meetings to oppose new development. Politicians listen because homeowners vote at higher rates than renters. The result is a system that structurally favors existing property owners over prospective buyers.

Research from economists like Edward Glaeser and Joseph Gyourko has estimated that land-use regulations add $100,000-$400,000 to the cost of a home in high-regulation markets compared to what the home would cost in a less-regulated environment.

3. The Cost of Land

Land prices have exploded, particularly in desirable metropolitan areas.

• In many coastal markets, the land alone under a modest home is worth $200,000-$500,000 or more.
• Land costs now represent 30-50% of the total cost of a new home in high-cost areas, up from 20-25% historically.
• Developable land near job centers is increasingly scarce. Geography (mountains, water, protected lands) and regulation (growth boundaries, agricultural preserves) limit where you can build.

Land is a finite resource, and in the most in-demand locations, it's the primary driver of home costs.

4. Low Interest Rates Inflated Prices (And Now We're Stuck)

This one is counterintuitive but important.

From 2009 to 2022, the Federal Reserve kept interest rates at historically low levels. Mortgage rates dropped from roughly 5-6% to under 3%. Low rates meant buyers could afford higher purchase prices for the same monthly payment.

Here's the math: A $2,000/month mortgage payment buys you:

• A $420,000 home at 3% interest
• A $300,000 home at 6.5% interest

When rates were ultra-low, buyers bid up prices because they could afford to. Sellers raised their expectations accordingly. Home prices ratcheted up to absorb the increased purchasing power.

Now that rates are back to 6-7%, monthly payments have surged — but prices haven't come down proportionally because sellers who locked in low rates don't need to sell, and the supply shortage provides a floor.

The result: buyers face both elevated prices AND elevated rates. It's the worst of both worlds.

5. Investor Activity

Institutional and individual investors have increased their presence in the housing market, competing directly with owner-occupants.

• Institutional investors (companies buying 100+ homes) have been active since 2012. Firms like Invitation Homes, American Homes 4 Rent, and others have accumulated hundreds of thousands of single-family homes. While they represent a small percentage of total housing stock (roughly 2-3%), their impact is concentrated in specific markets and price tiers — often the affordable starter-home segment.
• Small-scale investors (individuals owning 2-10 properties) are a larger force. Investor purchases accounted for roughly 18-25% of home sales in recent years, depending on the market and how you define "investor."
• Short-term rental conversion. The rise of Airbnb and VRBO has pulled housing units out of the long-term market entirely. In tourist-heavy areas (coastal towns, mountain communities, resort areas), short-term rental conversions have materially reduced available housing for residents.

6. Construction Costs Keep Rising

[Building a home](/blog/construction-loan-guide) is significantly more expensive than it was a decade ago.

• Labor costs have risen 30-40% since 2019 due to the construction labor shortage.
• Material costs have increased broadly. Even after the lumber price spike of 2021 moderated, building materials remain 20-30% above pre-pandemic levels.
• Regulatory compliance adds cost. Building codes, energy efficiency requirements, accessibility standards, and impact fees add $20,000-$80,000+ to the cost of a new home depending on jurisdiction.
• Impact fees and exactions. Many municipalities charge developers tens of thousands of dollars per unit for infrastructure (roads, schools, water, sewer). These costs get passed directly to buyers. In some California jurisdictions, fees and exactions exceed $100,000 per unit.

The National Association of Home Builders estimates that regulatory costs (permits, fees, code compliance, development requirements) account for roughly 24% of the final price of a new single-family home. On a $400,000 home, that's approximately $96,000 in regulatory costs.

7. Demographic Pressure

Demand for housing is driven by demographics, and the demographics are unrelenting.

• Millennials are the largest generation in U.S. history (~72 million). They're in peak household-formation and homebuying years. This cohort alone is creating massive demand for housing.
• Immigration adds demand. Net international migration has been running at 1-1.5 million people annually in recent years, each of whom needs housing.
• Household size has been shrinking. More single-person households, more divorces, more people living alone by choice — all of this means you need more housing units for the same population.
• People are living longer. Older Americans are [aging in place](/blog/buying-home-for-aging-parents) rather than downsizing or entering care facilities. This keeps homes off the market that would otherwise turn over to younger buyers.

The Geographic Divide

The affordability crisis isn't uniform. It's dramatically worse in some places than others.

Most Expensive Markets (Median Home Price, Approximate)

• San Jose, CA: $1.4 million+
• San Francisco, CA: $1.2 million+
• Los Angeles, CA: $900,000+
• San Diego, CA: $850,000+
• Seattle, WA: $800,000+
• New York Metro: $600,000-$1 million+ (varies dramatically by area)
• Boston, MA: $750,000+
• Miami, FL: $550,000+

More Affordable Major Markets (Median Home Price, Approximate)

• Indianapolis, IN: $250,000
• Columbus, OH: $275,000
• Pittsburgh, PA: $220,000
• Memphis, TN: $210,000
• Detroit, MI: $220,000
• San Antonio, TX: $280,000
• Oklahoma City, OK: $225,000

The difference is staggering. A household income of $80,000 can comfortably purchase a home in Indianapolis but would struggle to afford a studio condo in San Jose.

What's Being Done (And Is It Working?)

Federal Level

• [Down payment assistance](/blog/down-payment-assistance-programs) programs help first-time buyers, but they treat symptoms rather than causes. Giving people more money to bid on a limited supply of homes can actually push prices higher.
• Low-Income Housing Tax Credits (LIHTC) finance roughly 100,000 affordable units annually. It's the largest federal program for affordable housing production, but it's insufficient relative to the need.
• FHA and VA loans make homeownership accessible with lower down payments, but they don't address the supply problem.

State Level

Some states are taking meaningful action:

• Oregon effectively eliminated single-family-only zoning statewide in 2019, allowing duplexes on all residential land in cities with 10,000+ people and four-plexes in cities with 25,000+.
• California has passed numerous bills (SB 9, SB 10, AB 2011, AB 1218) to allow more density, streamline permitting, and limit local ability to block housing.
• Montana, Washington, and Minnesota have passed similar zoning reform bills.

Local Level

• [Accessory Dwelling Unit](/blog/multigenerational-housing-guide) (ADU) legalization has spread across the country. ADUs — backyard cottages, garage conversions, basement apartments — are one of the fastest ways to add housing units without changing neighborhood character.
• Minneapolis eliminated single-family zoning citywide in 2018. Early data suggests modest increases in new housing construction.
• Some cities are reducing or eliminating parking minimums, which lowers construction costs and allows more units per lot.

Is It Working?

Slowly. The reforms are real and directional, but the deficit is enormous. Building 3.8 million additional homes takes years even with favorable policies. And many of the highest-cost markets (coastal California, the Northeast corridor) have decades of underbuilding to unwind.

What This Means for You

If You're Trying to Buy

• Consider location flexibility. Remote work has expanded where you can live while maintaining a good income. The price difference between coastal and interior markets is enormous.
• Look at emerging markets. Cities like Huntsville, AL; Bentonville, AR; and Boise, ID offer strong job markets and lower costs (though some, like Boise, have already seen significant appreciation).
• Explore house hacking. Buying a duplex, triplex, or home with an ADU and renting part of it can dramatically improve affordability by having tenants cover a portion of your mortgage.
• Don't skip first-time buyer programs. Between FHA loans (3.5% down), VA loans (0% down), USDA loans (0% down in eligible areas), and state/local down payment assistance, there are real programs that reduce the upfront barrier.

If You're a Renter

• Renting isn't "throwing money away." In many high-cost markets, renting and investing the difference can build more wealth than buying. Run the numbers for your specific situation using a rent-vs-buy calculator.
• Advocate for housing policy. Show up to local planning meetings. Support zoning reform. Vote for candidates who prioritize housing production. Renters are the majority in many cities but are dramatically underrepresented in local politics.

If You're a Homeowner

• Understand your privilege. Owning a home in this market means you've benefited enormously from price appreciation. Resisting new housing in your neighborhood because it might affect your property values comes at a real cost to people trying to get into the market.
• Consider ADUs. If you have space, building an ADU or renting a room adds housing supply and generates income.

The Path Forward

The housing affordability crisis wasn't created overnight and won't be solved overnight. But the solutions are known:

1. Build more housing. Full stop. Especially in high-demand areas near jobs and transit.
2. Reform zoning. Allow more types of housing in more places. End single-family-only zoning in major metro areas.
3. Reduce regulatory costs. Streamline permitting. Reduce or eliminate excessive impact fees. Shorten approval timelines.
4. Invest in construction workforce. Expand trade education, apprenticeship programs, and immigration pathways for construction workers.
5. Preserve existing affordable housing. Prevent unnecessary demolition of naturally occurring affordable housing. Fund maintenance and [renovation](/blog/bathroom-renovation-cost-guide).

None of these are easy. All of them require political courage to stand up to entrenched interests that benefit from the status quo.

But the alternative — a country where the median household can't afford the median home — isn't sustainable. Something will give. The question is whether we choose smart reform or wait for a crisis to force change.

FAQs

Why can't I afford a house even with a good salary?

Because home prices have grown roughly 3 times faster than wages over the past 35 years. A salary that would have bought a comfortable home in 2000 buys significantly less today. Additionally, higher mortgage rates mean your monthly payment is larger relative to the purchase price than it was during the low-rate era.

Is the housing affordability crisis getting better or worse?

As of early 2026, it's roughly flat to slightly worsening in most markets. Home prices continue to grow modestly (2-4% annually), but wages are also growing. The biggest variable is mortgage rates — if they decline significantly, affordability improves even without price reductions.

Are investors really to blame for high housing prices?

Investors are a contributing factor but not the primary cause. The main driver is insufficient supply relative to demand. In specific markets and price tiers (particularly entry-level homes in Sun Belt cities), investor activity has measurably increased competition and prices. But even without investors, the supply shortage alone would keep prices elevated.

Will building more housing lower prices?

Building more housing moderates price growth and can reduce prices in specific segments. However, "lower prices" nationally is unlikely — more realistically, building more brings prices in line with income growth rather than dramatically outpacing it. In overbuilt markets, new supply can and does reduce prices.

Why don't they just build more affordable housing?

"Affordable housing" has two meanings: subsidized housing (below-market-rate units funded by government programs) and naturally occurring affordable housing (older, smaller, or less desirable units that are cheap because of their characteristics). Government-subsidized affordable housing is limited by funding. Naturally occurring affordable housing is limited by supply — when there aren't enough homes overall, even low-quality units become expensive because of competition. The most effective long-term solution is building enough total housing to reduce scarcity across all price tiers.

How much do I need to earn to buy a home in 2026?

This varies enormously by market. A rough rule of thumb: you need a household income of roughly 3-4 times the home price divided by 10 to comfortably afford the monthly payments. For a $400,000 home, that's approximately $120,000-$130,000 in household income. In expensive markets, the required income is much higher. In affordable markets, much lower.

Related Articles

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• [[DSCR Lenders](/blog/best-dscr-lenders-2026) with the Lowest Down Payment Requirements in 2026](/blog/dscr-lenders-lowest-down-payment)
• [[DSCR Loan Down Payment](/blog/dscr-loan-down-payment-requirements): How Much Do You Really Need?](/blog/dscr-loan-down-payment-requirements)