Real Estate Investing

A Deep Dive into Unaffordability and Potential Resolutions Pt. 2


Homeownership has long been considered a cornerstone of economic stability and prosperity. However, in the last few decades, this fundamental aspect of the American Dream has drifted farther from the grasp of the average citizen. Despite this, it’s vital to understand that the phenomenon of unaffordable housing isn’t a single problem with a single cause. Rather, it’s an intricate web of interconnected issues that have evolved over time, influenced by various social, economic, and political factors. In this essay, we will dissect these contributing elements, each a strand in the complex tapestry of housing unaffordability, to gain a nuanced understanding of the issue at hand.

Demand-Supply Imbalance: A Double-Edged Sword

One of the most immediate reasons behind skyrocketing housing prices is the imbalance between supply and demand. As cities grow, attract more businesses, and offer more amenities, they draw in larger populations. However, the housing supply often doesn’t grow at the same pace, causing an upward pressure on prices.

Urban Migration

Cities are job magnets. The promise of better employment opportunities and a higher quality of life lures people into urban centers, increasing housing demand. The higher concentration of jobs in urban areas creates a snowball effect, making the problem even more acute.

Geographic Limitations

In some cities, geographic constraints like water bodies, protected land, and other natural features limit the ability to expand outward. With limited space and increasing demand, vertical construction becomes expensive, adding another layer to the supply issues.

Low Interest Rates: A Wolf in Sheep’s Clothing

At first glance, low-interest rates appear to make homeownership more accessible. In reality, these rates often have the opposite effect.

Increase in Borrowing

Low rates encourage more people to take out larger loans, believing that they can afford more expensive homes. This increases competition, leading to bidding wars and, inevitably, higher home prices.


Low-interest rates make it cheaper for investors to borrow money, buy properties, and then rent or sell them at higher rates. This speculative activity inflates housing costs, pushing homes further out of reach for the average buyer.

The role of real estate as an investment vehicle has been both a boon and a bane for housing affordability.

Foreign Investment

Global investors, particularly from countries with volatile economies, often see real estate in stable countries as a safe investment. This kind of foreign capital can drive up prices considerably, leaving locals at a competitive disadvantage.

Domestic Speculation

Domestically, many people invest in real estate as a way to build wealth, further reducing the housing stock available for people who just want a home to live in. The shift from viewing houses primarily as homes to seeing them as investment commodities exacerbates the affordability crisis.

Zoning laws, building codes, and land-use regulations may have been created with the best intentions, but they often contribute to housing unaffordability.

Zoning Laws

Single-family zoning laws, which limit the types of housing that can be built in certain areas, severely restrict housing supply. This kind of zoning makes it impossible to build multi-family units, which are generally more affordable.

Compliance Costs

More stringent building codes aimed at increasing sustainability and safety can inadvertently add significant costs to construction, which are inevitably passed on to the buyer or renter.

Income Inequality: The Growing Gap

The widening economic disparities within society are a less direct but incredibly influential factor. As the rich get richer and the middle class stagnates, the capacity to afford housing diverges sharply.

Wage Stagnation

Even as costs of living continue to climb, wages for many Americans have remained stagnant for years, when adjusted for inflation. The widening gap between income and housing costs turns even median-priced homes into unaffordable luxuries.

Wealth Concentration

As wealth becomes concentrated in fewer hands, more properties are bought up by a small segment of society, either as second homes or as investments, further straining the already limited housing supply.

The labyrinthine issue of housing affordability is influenced by a multitude of factors, each compounding the other. From demand-supply imbalances fueled by urban migration and geographic limitations to the paradoxical impact of low interest rates; from the investment-driven inflation of real estate prices to restrictive regulatory frameworks; and from the growing divide of income inequality, every aspect plays a role in making housing increasingly unaffordable.

Understanding these multifaceted contributors is the first step in addressing the crisis. Each factor warrants its own set of targeted interventions, and any comprehensive solution must be equally complex and multifaceted. As the problem has many fathers, so too must the solution have many architects. Only a collaborative, multi-pronged approach can hope to unravel the knot of housing unaffordability that has ensnared modern society.

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