Executive Summary
- The national debate on “affordability” is increasingly focused on the structural issue of housing costs rather than just general consumer price inflation.
- Data shows a significant decline in housing affordability, with the average home price rising from 3.5 to 5 times the average annual household income since 1985.
- According to some analysts, policies like rent control are viewed as short-term fixes that may discourage new construction and worsen the supply shortage over time.
- A proposed long-term solution involves an “abundance agenda” focused on building more housing and investing in transportation infrastructure to address the root cause of high costs.
The concept of “affordability” has become a central issue in American politics, with a growing consensus that the problem extends beyond general inflation to the severe and worsening costs of housing. According to analysis by political economist Francis Fukuyama, while politicians may focus on short-term relief measures like rent control, the root of the crisis lies in a decades-long failure to build an adequate supply of housing to meet demand.
The Data on Declining Affordability
Statistical evidence highlights a dramatic decline in housing affordability over the past several decades. In 1985, the average cost of a house was approximately 3.5 times the annual household income; today, that ratio has climbed to 5 times. For renters, the situation is similarly challenging, with the median rent-to-income ratio increasing from 25% to 30% over the last two decades. Currently, half of all American renters spend more than 30% of their income on housing, a significant increase from 41% twenty years ago.
These figures, particularly in major metropolitan areas, suggest that standard economic indicators like the Consumer Price Index do not fully capture the financial pressures on average households. The most significant budget items driving inequality are now concentrated in housing and transportation.
Critique of Short-Term Solutions
According to Fukuyama’s analysis, popular policy proposals such as rent control are ultimately “short-term band-aids” that fail to address the underlying supply shortage. He argues that while such measures may offer temporary relief for existing tenants, they create powerful disincentives for the construction of new housing. This can exacerbate the supply problem in the long run, leading to greater inequality as a limited number of rent-controlled units become highly sought-after assets.
Focus on Supply and Infrastructure
The proposed long-term solution is to embrace an “abundance agenda” focused on substantially increasing the housing stock. This approach argues that the most direct way to reduce housing prices and, in turn, inequality, is to build more homes. This strategy also includes significant investment in infrastructure, such as high-speed transit, to connect urban job centers with more distant, affordable suburban communities, thereby easing pressure on city housing markets and reducing commute times.
Ultimately, the analysis concludes that while rising consumer prices are a concern, as noted by figures like President Donald Trump, the more profound and structural affordability crisis is rooted in the limited supply of housing. Addressing this core issue through construction and infrastructure is presented as the most effective path toward long-term affordability.
