The Housing Crisis
America's housing shortage is not a mystery — it is the predictable result of zoning laws designed to preserve exclusion, and the political economy of homeowners who benefit from scarcity.
The short version
- The United States is short approximately 4–7 million housing units; the shortage is most acute in the high-cost coastal cities where economic opportunity is most concentrated, effectively preventing millions of workers from living near the jobs that would best match their skills.
- The primary cause of the shortage is zoning: most urban and suburban land in America is legally restricted to single-family homes, preventing the denser housing that markets and populations demand.
- Single-family zoning has its roots in explicit racial exclusion — its early practitioners said so openly — and its contemporary effects remain racially and economically segregating regardless of stated intent.
- Homeowners in constrained markets have a direct financial interest in housing scarcity, because scarcity inflates the value of existing homes; this conflict of interest shapes local politics in ways that make supply-side solutions politically difficult despite broad consensus among economists that supply is the central problem.
What it is
The United States has a housing supply problem. Estimates of the national shortage range from approximately 3.8 million units (Freddie Mac, 2021) to 6.8 million units (Up for Growth, 2022), with more recent analyses suggesting the gap has widened further. The shortage is not evenly distributed: it is most severe in coastal metropolitan areas — San Francisco, Los Angeles, Seattle, Boston, New York, Washington D.C. — where job growth and economic opportunity have continued to draw workers while housing construction has lagged dramatically behind population growth and household formation. The result is that housing costs in these areas have diverged sharply from costs in the rest of the country, and that divergence has deepened over the past two decades in ways that constrain economic mobility and residential access by income and race.
Zoning is the principal mechanism through which housing supply is constrained. Zoning codes are local laws that specify what can be built on each parcel of land. Single-family zoning — which restricts parcels to one detached house per lot and prohibits apartments, duplexes, townhouses, and other multi-unit structures — covers approximately 75% of residential land in most major American cities. In some jurisdictions (Los Angeles, Seattle, Minneapolis before its 2018 reform), it has historically covered 90% or more of residential land. Single-family zoning does not just prohibit dense housing; it prohibits dense housing on a legal basis that makes alternatives difficult to build even where demand is high and owners are willing to sell. Minimum lot sizes, setback requirements, height limits, parking minimums, and lengthy permitting processes add additional friction. The cumulative regulatory burden can double or triple the cost of housing construction relative to markets with more permissive rules.
Single-family zoning's origins are not racially neutral. Early 20th-century zoning was developed explicitly as a tool of residential segregation — a legal alternative to racial deed restrictions after the Supreme Court struck down explicit racial zoning ordinances in Buchanan v. Warley (1917). Berkeley, California adopted America's first comprehensive single-family zoning code in 1916; its purpose, articulated clearly in contemporary documents, was to separate wealthy white residential neighborhoods from areas used by Japanese American workers and businesses. The Euclid v. Ambler Realty decision (1926) that established zoning's constitutionality was widely understood at the time as a tool for maintaining neighborhood exclusivity in class and racial terms — the Supreme Court's opinion described apartment buildings as 'parasites' on single-family neighborhoods. The racist intent faded from official language as it became legally inadmissible; the segregating effect continued through the neutral language of land use regulation.
The 2008 financial crisis added a second dimension to the housing crisis that is distinct from the supply shortage: the collapse of the homeownership market damaged the financial position of millions of households who had been encouraged into homeownership as a wealth-building strategy, then had that wealth wiped out by a market constructed in part by predatory lending and fraudulent securitization. Approximately 10 million homes were lost to foreclosure between 2008 and 2012. The households most affected were disproportionately Black and Hispanic homeowners targeted by subprime lenders — the reverse redlining documented by researchers and regulators. The post-crisis consolidation of rental housing into institutional landlord portfolios — private equity firms purchasing foreclosed homes at scale and renting them out — transformed local housing markets in ways that have contributed to rent increases without increasing supply.
Why it matters
The housing shortage is an economic problem with consequences that extend far beyond housing costs. When workers cannot afford to live near high-productivity jobs, they either commute longer distances at great personal cost, take lower-productivity jobs closer to home, or forgo the opportunity entirely. Economists have documented that housing constraints reduce economic growth: a 2015 paper by economists Chang-Tai Hsieh and Enrico Moretti estimated that reducing housing supply restrictions in New York, San Jose, and San Francisco to the median level of U.S. cities would increase GDP by approximately 2% — roughly $1.7 trillion — by allowing workers to relocate to their most productive employment. The housing shortage is not just a social equity problem; it is an efficiency problem that reduces the size of the economy by misallocating labor.
The political economy of housing restriction is stubbornly stable because the beneficiaries of scarcity are concentrated and well-organized while the victims of scarcity are diffuse and often absent from the political process. Existing homeowners benefit from housing scarcity in a direct financial sense: when new supply is prevented from entering the market, the value of existing housing rises. In high-cost cities, homeownership is the largest source of household wealth for middle-class families; their financial interest in maintaining scarcity is real and substantial. Local government revenues from property taxes are also tied to assessed values, giving local governments a fiscal interest in high property values. The people most harmed by housing scarcity — younger renters, households not yet in the housing market, workers who can't afford to live near high-opportunity areas — are often not residents of the jurisdictions that make zoning decisions, and therefore have no vote in the local political process that determines housing supply.
The political alignment on housing reform has created an unusual ideological configuration. The pro-housing (YIMBY — Yes In My Backyard) movement cuts across conventional political lines: libertarians who favor market solutions, progressives concerned about housing affordability and racial segregation, and urban economists who emphasize supply constraints all support increased housing construction. Opposition also cuts across conventional lines: wealthy liberal homeowners in expensive cities have been among the most consistent opponents of upzoning in their neighborhoods, while rural conservatives resist housing mandates on local control grounds. California has passed a series of state-level laws since 2019 that override local zoning to allow more density, representing the most significant shift in U.S. housing law in decades; similar legislation has passed in Montana, Washington, and several other states.
The rental housing market has become increasingly characterized by institutional landlordship in ways that may be exacerbating affordability independent of supply constraints. Private equity firms — Invitation Homes (backed by Blackstone), American Homes 4 Rent, and others — purchased hundreds of thousands of single-family homes during and after the 2008 foreclosure crisis, becoming large-scale landlords in markets where single-family rentals had previously been fragmented. These institutional landlords have deployed pricing algorithms that adjust rents based on market conditions, and have been accused in antitrust litigation of coordinating rent increases through shared data platforms. A 2024 Senate investigation documented that pricing software from RealPage was used by landlords controlling hundreds of thousands of units in concentrated markets to push rents above competitive levels. The supply shortage and the consolidation of rental market power are separate problems that interact: institutional landlords have limited incentive to advocate for supply expansion that would reduce their pricing power.