When Did the American Housing Affordability Crisis Begin?

Housing prices are higher today than they were 75 years ago, but the real problem began in the early 2000s

By Caleb Petitt of The Independent Institute. 

"High housing prices are a perennial complaint about the modern economy. Commenters from both sides of the political aisle have noticed that housing has become more expensive relative to incomes over the past few decades.

But merely knowing that housing today is less affordable than in 1950 tells us little about why home prices have risen. Knowing when the housing affordability crisis began helps us to understand what caused it.

Some of the reasons for higher home prices aren’t necessarily a sign that anything has gone wrong. For example, American homes have risen in quality over the past 75 years. Homes are dramatically larger. In 1950 the average house was 983 square feet, but in 2025 the median home is 1,800 square feet (83 percent larger).

In 1955, fewer than 2 percent of homes had air conditioning, and less than half a percent had central air conditioning. Today, nearly 90 percentof homes have air conditioning. Approximately one-third of U.S. homes lacked complete plumbing in 1950; that dropped to less than 1 percent in 1990.

People have also concentrated in urban areas. In 1950, 64 percent of Americans lived in urban areas. As of 2023, 83.3 percent did so. Urban regions offer greater access to a variety of goods and services, but space is more constrained, so prices are often higher than in rural areas.

The Department of Housing and Urban Development released data from 1977 to 2000 that showed the yearly average home price and the yearly average home price controlled for quality. Approximately 25 percent of the price increase was attributable to increases in quality.

Home price growth does not outpace income growth before 2000 when home quality is held constant. From 1977 to 2000, median family incomes grew 5.2 percent annually, while average quality controlled home prices only grew 4.7 percent annually, and unadjusted median home prices grew 5.6 percent annually.

Essentially, from 1977 to 2000, the American family was willing to invest a slightly larger share of its income to get a significantly better house. And controlling for quality, homes became cheaper for the median family from 1977 to 2000.

The growth of median home prices began to diverge from income growth in the early 2000s. Housing prices grew by 4.2 percent annually from 2000 to 2008 and by 4.4 percent from 2008 to 2023. Median family income grew much slower: by 2.5 percent annually from 2000 to 2008, and by 3.4 percent from 2008 to 2023.

These measures don’t control for quality, so they overstate the problem. But the difference in the growth rates of median home prices and incomes grew relative to what they were from 1977 to 2000.

What could have caused home price growth to begin to outpace income growth? In 1995 regulators overhauled the Community Reinvestment Act and increased its enforcement, which rapidly increased the provision of subprime mortgages and housing demand. That led to the housing market crash of 2008, followed by a dramatic rise in financial regulation through Dodd-Frank in 2010.

The number of new homes built plummeted because of the economic recession, and Dodd-Frank shackled the financial sector and increased concentration in the mortgage industry. Zoning and land-use regulationshave also increased steadily since the mid-20th century, further complicating the process for increasing the housing supply.

The housing affordability crisis has not been slowly developing over the past 75 years, but rather quickly became a burden at the turn of the millennium, in large part because of distortionary regulations of the mortgage industry. If policymakers want to make home ownership affordable, they need to clear away the obstacles to home construction and mortgage lending."