Access to affordable housing is integral to economic security, and homeownership is often a precondition for economic mobility. Sadly, the prospect of homeownership remains increasingly elusive for potential homebuyers due to high home prices and interest rates. Prospective Black buyers face additional obstacles, including the burden of student loan debt and discrimination in mortgage lending.  

The rising cost of homeownership is also having spillover effects in the rental market as more families have had to resort to renting, thus increasing the demand and prices for rental units. The primary issue leading to America’s housing crisis—for buyers and renters—is a shortage of affordable housing that has major implications for equitable access to shelter and wealth. 

Outlining the problem 

In Figure A, the Consumer Price Index (CPI) for rent of primary residence reveals a significant surge in the cost of renting across U.S. cities over time. Since 2009, the cost of rent has climbed 67%—with nearly half of that increase occurring in the last five years. The cost of rent has increased faster than the cost of most consumer goods. Such a steep increase underscores the mounting financial burden on renters and the challenges they face in securing affordable housing. 

The problem of rising rent is most acute in growing metro areas with a greater concentration of employment opportunities. The result is lower-income workers and their families are being pushed further out into the suburbs where they face longer commutes and higher transportation costs, while families who remain in the cities find housing costs are consuming more of their monthly income as the threat of eviction and homelessness rise.

Families who rely on government assistance to gain access to housing—a disproportionate share of whom are women-led, Black, or Hispanic—face further headwinds through source-of-income discrimination. While many states and localities prohibit discrimination against families attempting to use Housing Choice Vouchers (otherwise known as Section 8) to access housing, this is not the case federally, and in many places, enforcement is lacking. 

During the early months of the pandemic, the Federal Reserve appropriately acted to avert economic catastrophe by reducing already low interest rates. While this made accessing mortgages easier for new homebuyers than it had been for many years, the resulting surge in home purchases combined with the pause in new construction during the pandemic made an existing shortage of housing stock much worse. As the Fed aggressively hiked interest rates in 2022 and 2023 in response to rising inflation, that temporary ladder toward homeownership for many has been pulled away, leaving much of the U.S. housing market prohibitively expensive for would-be homeowners and renters alike. 

The consequences of the housing affordability crisis extend beyond making access to shelter more difficult. Safe and secure instruments for building wealth are few and far between in the United States, so most families rely on their home as the major source of net worth. Wealth-building is put further out of reach for many families when access to homeownership is made more difficult. That problem is exacerbated for Black families, who own just 15.5% of the wealth of the typical white family, and for whom housing wealth is a larger share of overall wealth than for other groups.  

Black and Hispanic families are consistently more likely to be denied access to mortgages than the overall population of homebuyers, and this disparity comes from more than simply a difference in ability to pay or creditworthiness. Marginalized families face various forms of discrimination when attempting to access and benefit from homeownership—from difficulty obtaining mortgages at all to receiving less favorable mortgage rates and unfair home appraisals. For example, the Department of Justice (DOJ) and Consumer Financial Protection Bureau (CFPB) have in recent years caught banks and credit unions red-handed continuing the legacy of redlining by refusing to lend in majority Black and Hispanic neighborhoods, and by offering sub-prime mortgage rates to Black or Hispanic borrowers, irrespective of ability to pay.  

Inaccessible homeownership, rising rents, and widespread discrimination together create a housing situation in the United States that feels dire. It’s little wonder that sentiment about the economy is mixed, despite a strong job market with the largest wage gains among low-wage workers and slowing inflation. Positive messages about the strength of the post-pandemic economy can ring hollow when housing costs continue to consume a larger portion of household budgets.  

Why the market approach to the housing affordability crisis won’t work 

There is a tension at the heart of the relationship between landlords and tenants that makes it difficult for the market to reach a solution to the housing affordability crisis without government intervention. Landlords are driven to maximize the total amount of revenue and can best achieve that goal using one of two strategies: by catering to tenants with higher, more stable incomes (the luxury strategy) or by minimizing the cost of maintenance on cheaper units through neglect and a lack of improvements (the slumlord strategy). The luxury strategy excludes typical U.S. workers and their families, as wages have not kept up with the increasing costs of rent over the past 40 years—even the relatively strong wage growth of the last four years has not been enough to offset rising housing costs. The slumlord strategy results in unsafe living conditions and housing insecurity. In both cases, working families, particularly those of color and in the bottom of the income distribution, face the brunt of the consequences. 

Unfortunately, the United States has not done anywhere near enough to regulate the rental market to protect tenants from untenable rent increases, housing insecurity, and unsafe living conditions. And some policymakers are trying to deregulate the market further: Recent proposals aim to make it easier to evict tenants struggling to make rent and to relax safety standards for the construction of manufactured homes. An insufficiently regulated rental market leads to a squeezing of the middle for typical American households; overproduction of high-cost (luxury) units to service a higher-income clientele pushes lower-income families out of desirable metropolitan areas, while less affluent families are pushed toward housing insecurity and less safe conditions. 

On the homeownership side, a lack of adequate enforcement of existing regulations has opened the door to racially discriminatory practices. Moreover, the legacies of gentrification and continued racial and economic segregation in cities across the country are clear examples of insufficient regulation, representing another critical dimension of the housing crisis we face. 

Equity-focused policy is a better alternative 

Further deregulation is not the solution to the crisis facing the U.S. housing market. Instead, we should use policy to ensure that people can access the fundamental human need of shelter in a way that is economically sustainable and equitable. No single approach will be enough to solve the housing affordability problem entirely on its own—a bundle of equity-focused policies will be necessary to move the needle. 

Federally funded housing construction that is energy efficient and safe would be the most direct method of addressing our current housing supply shortage. The Biden administration has already taken steps toward this goal through federal subsidization and tax credits for construction in areas facing supply constraints. A more radical strategy would involve the government building more housing directly, as suggested by the social housing movement in Washington D.C.  

Reforming zoning laws to allow for more residential construction, and more multifamily housing in particular, should also be part of the approach to increasing housing supply, but admittedly one that faces opposition. Existing homeowners often object to the creation of more multifamily housing in their vicinity; the current housing shortage and zoning regime contributes to maintaining the value of their home should they decide to sell. This should not impede efforts to solve the housing crisis. An equity-focused policy approach would prioritize directing resources toward those struggling to make rent or purchase their first homes at an affordable price over boosting existing homeowners’ store of wealth. 

Rent control is another policy that should be pursued under an equity-focused approach. Ideally, wages would rise in proportion to rents, but this has not been the case for the past 40 years. Placing a limit on rent increases protects renters and their families from experiencing housing insecurity and would also curtail one of the major contributors to inflation. 

Focusing on the demand side of the housing crisis, equity-focused policy prioritizes fair access to the housing market. This means proactively pursuing equity in lending, home appraisal, and the use of housing vouchers along with robust enforcement of antidiscrimination laws. Providing more support to enforcement agencies like the DOJ and CFPB is essential to supporting fair housing practices like those proposed in the Fair Housing Improvement Act, which would address source-of-income discrimination at the federal level.  

A root problem of racial disparities in housing and homeownership on the demand side is unequal access to capital. Racial disparities in homeownership are often cited as a major contributor to the racial wealth gap, but for many Black and Hispanic families, the difficulty in becoming a first-generation homeowner is so often a matter of differences in access to intergenerational wealth transfers. Black and Hispanic young adults are less able to receive financial help from a family member in putting together a down payment on a home. An equity-focused policy solution would be the first-generation down payment assistance programs proposed by the Biden administration’s Build Back Better framework that’s now being introduced in states and localities across the country. Student debt cancellation is another equity-focused solution, as the burden of student debt disproportionately hinders Black borrowers in their pursuit of homeownership.  

Finally, programs centered on redress for our nation’s history of Black families being left out of the programs that built a white middle class of homeowners could be used to address the large racial wealth gaps that characterize the United States. Housing voucher programs like the Restorative Housing Program in Evanston, Illinois, are one strategy along a spectrum of policies that extends all the way to cash-based reparations at the local, state, and federal levels. 

Maintaining a housing market that is affordable and accessible for all is too critical of an issue to leave to chance, or to the turbulence of the market. Whether families decide to rent or pursue homeownership, securing shelter should not push them toward financial ruin, nor substandard living conditions. We’ll need to design and implement a broad basket of policies that centers equity across race, income, and family structure if we want to solve our housing crisis in a way that benefits all.