Inequality, not Regulation: The Real Driver of the U.S. housing affordability crisis
In debates over housing affordability, one solution is repeated with near certainty: build more housing. The argument is straightforward. Restrictive land use regulations, such as zoning, limit construction. When the supply of new housing fails to keep pace with demand, prices rise, often to the point of unaffordability for many Americans. Increasing supply, then, is widely presented as the cure. By relaxing regulations and allowing for more housing to be built, supply would rise to meet demand, and prices for older units would fall, improving affordability for those currently priced out of the market.
But what if this widely accepted diagnosis—and the policy recommendations that follow from it—is incomplete? Rather than focusing on supply constraints alone, the authors argue that rising inequality, both in terms of income and geography, is central to understanding why housing has become increasingly unaffordable. In doing so, they shift the debate from how much housing is built to who it is built for and where demand is concentrated.
The “deregulationist consensus”
The “deregulationist consensus” described above rests on two central claims: restrictive housing regulations limit the supply of new housing being built; and increasing the supply of new houses will decrease housing prices. The authors present data that challenge both claims. Empirical research suggests that de-regulation does not meaningfully increase housing supply. Across cities with both strict and more permissive regulatory environments, housing supply responds similarly to shifts in demand. The assumption that housing “filters” down to lower-income households over time also does not hold uniformly across cities. In high-demand cities—such as Los Angeles and San Francisco—housing units often “filter up” becoming occupied by higher-income residents rather than becoming more affordable.
Using simulation models, the authors demonstrate that even substantial increases in housing construction would take decades to meaningfully improve affordability, particularly in high-cost metropolitan areas. In the Bay Area, even optimistic projections suggest it would take approximately 20 years for housing to become broadly affordable; less optimistic estimates extend beyond a century. This is partly a matter of timing (as new supply would take years to affect prices), but also one of distribution. Simply building more houses, in this simulation, fails to alleviate the housing affordability crisis.
Inequality as the central driver
Instead of supply, the authors identify inequality as a central driver of the housing crisis, operating across both households and regions. While the income of Americans has risen on average over past decades, so too has income inequality between higher-earning college-graduates and lower-earning workers with less educational attainment. As housing prices have increased with the rising incomes of higher-earners, lower-earners with stagnant incomes have become increasingly disadvantaged—consuming less housing, spending more of their income on rent, or relocating.
At the same time, economic activity in the United States has become increasingly concentrated in a small numberer of regions, such as San Francisco, Washington D.C., San Jose, and Austin. These “superstar” cities pull college-educated workers from other regions at disproportionate rates, offering high-wage jobs in information technology, biotech, finance, and processional citizens. College-educated workers in these “superstar” cities do not just earn greater wages that their less well-educated fellow residents, they earn greater wages than their similarly-educated and employed peers in other regions of the country. Furthermore, because these regions must house both high- and low-earning workers, interpersonal equality is similarly heightened. This combination—rising inequality and spatial concentration—helps explain why housing costs have surged in cities such as where demand is both exceptionally strong and unevenly distributed.
In this sense, the affordability crisis is not simply a housing problem, but a reflection of broader economic inequality. Policies focused exclusively on deregulation risk overlooking these underlying forces. By reframing the problem, the authors open the door to a wider range of policy responses. If they are correct, then building more housing, while necessary, will not be sufficient. Instead, policies are need that will reduce income inequality more broadly, as well as expanding and strengthening existing affordable housing programs. Without addressing the deeper distributional dynamics shaping demand, housing affordability is likely to remain out of reach for many households.
This article is based on the working paper “Inequality, not regulation, drives America's housing affordability crisis” published by the International Inequalities Institute at the London School of Economics and Political Science. Read the working paper here.
About our affiliate: Tom Kemeny is a professor at the Munk School at the University of Toronto. His prize-winning research is focused on cities, technology, and the deep determinants of economic performance. Current projects include work tracing the historical links between disruptive innovation and income inequality; a study of the effects of immigrant diversity on productivity in contemporary Britain; and an investigation of the changing geography of wealth in the United States.