The term housing crisis refers to acute failures in the housing market at a given place and time. Depending on the context and the speaker, the term has taken on substantially different meanings.[1] A prominent current use, for example, refers to shortages of available housing in the United States and other countries, but it has also been used to describe financial crises related to the real estate sector.
Following the first definition, the term "Housing crisis" or "affordability crisis" is currently used in the United States and other countries to refer to widespread shortages of housing in certain regions where people want to live. These shortages, caused in part by regulatory barriers to new construction, have had consequences such as elevated regional homelessness, housing insecurity, and high housing costs. Within this context, the term housing crisis has been applied to a number of different manifestations, with different causes and consequences. One California housing researcher, for example, chronicled at least thirteen ways in which the term "housing crisis" has been applied to shortage and affordability issues, indicating that there is not one "housing crisis" but instead a "web of problems and dysfunctions".[2] Even in regions that are not experiencing an overall housing shortage, for example, the term housing crisis has been used to refer to shortages for specific segments of the population, such as a shortage of dedicated affordable housing for very-low income populations or permanent supportive housing for those with disabilities.
The term has also been used to refer to financial crises tied to the housing sector, such as in the United States during the subprime mortgage crisis of 2007-2008. Similarly, "housing crisis" has been used to describe financial problems in the Chinese property sector that began in 2020 and are ongoing.
See also: Artificial scarcity. The term "housing crisis" often refers to issues around high prices for accessing housing, sometimes known as the housing shortage, housing crunch or the homelessness and affordability crisis.
The affordable housing gap is a socio-economic phenomenon characterized by the scarcity of affordable housing relative to the demand for it.[3] This disparity is linked to social, racial, and economic inequality, and disproportionately affects households with lower incomes. The insufficiency of suitable affordable housing options can lead to negative outcomes for both families and communities, including homelessness.
Cities around the world are facing an "affordability crisis" as part of a long run trend that has persisted for decades.
Economists debate the causes of this affordability crisis. The state of the debate as of 2022 was summarized by economists Christian Hilber and Olivier Schöni in a contribution to the Oxford Research Encyclopedia of Economics and Finance:
"Three strands of the literature can be distinguished. The first is a strand of the urban economics literature, which highlights the importance of local long-run supply constraints, especially land use restrictions, in conjunction with local longrun demand growth, as crucial determinants of high and growing house costs. The second strand emphasizes macroeconomic factors and financing conditions. It argues that a unique macroeconomic environment with a decline in the real rate of interest (influenced by central banks) or unprecedented availability of housing credit may explain a significant fraction of the increase in house prices over the last two decades. The third strand focuses on the role of unrealistic expectations about future house price growth."[4]Of the three strands, "the main underlying cause for the 'affordability crisis', which has been mounting for decades, is a combination of strong and growing demand for housing in desirable areas in conjunction with tight long-run supply constraints, both physical and man-made regulatory ones."
Although major cities around the world face housing shortages, leading to the use of the term "Global housing crisis," substantial variation exists across countries and across planning systems.[5] Among developed countries, for example, cities in Japan have relatively abundant and affordable housing for their size, which some have attributed to nationalized control of zoning and easy and fast permitting for housing construction. Most English-speaking countries, on the other hand, stand out for planning systems that enable NIMBY obstruction of housing, with prices rising and housing falling into shortage as a result. Exceptions include Houston non-zoning approach with no restrictions on specific land use (YIMBY) but with other developmental code.[6] Developed European countries, which favor higher density construction than Anglophone countries, have followed a path intermediate between these two.[7]
Housing affordability crises have especially hurt the finances of Millennials and Generation Z, who entered a more competitive housing market, resulting in paying a higher proportion of income towards housing costs.[8] Politico suggests that in many countries this has allowed populist politicians to stoke anti-immigrant sentiment among younger voters and has resulted in a generation more skeptical of the ability of democracy to deliver results.
See also: Housing insecurity in the United States. By the 2020s, the United States has faced a growing housing crisis defined by shortages of housing that differ in scope and effect depending on region or segment of the population. The housing shortage has been cited as a major factor in inflation in the US,[9] [10] [11] with Katy O'Donnell of Politico arguing that housing shortages were the single-biggest contributor to inflation.[12] The U.S. Census Bureau found that if you took out housing costs, inflation at the end of 2023 would have been 1.8% instead of 3.2%.[13] Artificial scarcity in the supply of housing, due to NIMBYism, has been a significant factor in making housing more expensive.[14] [15] Freddie Mac estimated that the housing shortage surged 52% between 2018 and 2020.
The United States Department of Housing and Urban Development (HUD) defines affordable housing as "housing on which the occupant is paying no more than 30 percent of gross income for housing costs, including utilities."[16] HUD uses the terms "cost burdened" and "severely cost burdened" to describe individuals or families that spend more than 30% and 50% of their income on housing costs, respectively.[17] According to the 2020 U.S. census, 46% of American renters are cost burdened, with 23% severely cost burdened.[18] The affordable housing gap especially impacts the lower-income households in America. A 2017 HUD survey found that 89% of extremely low income renter households were moderately or severely cost burdened. 83% of very low income households, 54% of low income households, 20% of moderate income households, and 6% of high income households met the same criteria.[19]
Decades of under-building in economically prosperous metros has led to regional housing shortages with national implications. In the 19th century, housing development in the United States was characterized by rapid urban growth in economically productive places.[20] Throughout the 20th century, however, a number of regulations that were designed to block in-fill and direct greenfield development took hold, such as exclusionary zoning. These regulations had the net effect of reducing housing construction and reducing the ability of regional housing stock to adjust to changing market conditions. Beginning in the last quarter of the 20th century, market-wide housing shortages have existed in a growing number of markets throughout the country, starting in prosperous coastal regions, such as Boston, New York, or the California Bay Area.[21] In the last two decades, these shortages have spread from coastal superstar cities to affect broader areas of the country, so that on average there is a deficit of housing nationwide.[22] Rental vacancy rates, for example, which are one marker of the balance of housing supply, have declined across the country. While, in a balanced market, rental vacancy rates should fall between 7 and 8 percent, only one U.S. census region, the South, achieved target levels on average in its metro areas as of 2021.[23]
These regional housing shortages have had nationwide effects. Rates of migration within the United States have fallen, housing costs have risen in areas that would otherwise provide quality jobs, and incomes from region to region have increasingly diverged.
Within areas experiencing these shortages, effects are especially acute among the young, the poor, among renters, those living in crowded conditions, and those experiencing homelessness. Areas with market-wide housing shortages have significantly higher rates of homelessness than those with adequate or surplus housing stock: Variations in rent-levels and vacancies are chief factors explaining regional variations in homelessness rates.[24]
After the COVID-19 pandemic, some baby boomers whose children have moved away have found it prohibitively expensive to move into smaller homes, a paradox caused by the higher prices of newer homes, tax benefits given to long-time owners, higher interest rates, and low supply of appropriately-sized housing caused by restrictive zoning that prohibits accessory dwelling units or requires single-family homes.[25] As of 2024, this shortage is estimated to be between 4 and 7 million homes, resulting in rents rising 30% since 2017.[26]
See also: California housing shortage and New York City housing shortage.
In addition to market-wide housing shortages in certain regions of the United States, the term "housing crisis" has been used to describe persistent shortages of non-commodity and supportive housing provided to vulnerable members of the population. Even in regions with relatively abundant market-rate housing, the market can fail to supply safe and sufficient housing to populations with very low income or disabilities that impair independent living. Insufficient public funding has contributed to a distinct housing crisis affecting these groups.[27] [28] Even regions with relatively abundant housing supply and low rates of homelessness, such as Mississippi, face challenges with street homelessness due to factors like addiction, as well as issues with housing quality.[29]
In addition to shortage and affordability issues, the term "housing crisis" has been used for overlapping concepts such as a "fair housing crisis," involving residential discrimination and effects of segregation; an "eviction crisis"; issues of gentrification and displacement; and environmental concerns. Eviction, displacement, and forms of housing inequality are worsened by and related to the shortage and affordability crisis, but also have causes of their own and require distinct solutions.[30]
See main article: article. Rising insurance premiums due to natural disasters has been one source of climate-driven price increases,[31] with one estimate showing home insurance premiums rising 33% between 2020 and 2023.[32] Climate change can also raise energy costs as hotter summers require more energy to keep home cool.
The United Kingdom faces regional shortages of housing, with undersupply and high demand in the south, relative to more abundant housing in economically depressed areas of the north.[33]
The UK National Planning Policy Framework uses the "standard formula" to assess local housing need. The formula uses household growth projections, adjusted for affordability[34] Critics of this method say that it does not account for the present backlog of housing. Households that live in poorly maintained or overcrowded accommodations would not be represented in the standard formula.[35] A 2019 report estimates that 4.75 million households in Great Britain are in need of adequate affordable housing.[36]
In the 2019 general election, both major political parties identified the housing gap as an obstacle for the country, and pledged to increase housing supply.[37] [38] The Parliament has a stated target of 300,000 new homes a year by the mid-2020s.[39]
India, as a rapidly developing nation with a burgeoning population and economy, faces a significant challenge in providing adequate housing to its urban residents. According to a report by the National Buildings Organisation (NBO) in 2012, the shortage of housing units in urban areas was estimated to be 18.78 million. The shortfall is particularly acute for households belonging to the Economically Weaker Section (total household income does not exceed 300,000 rupees), with a shortage of 10.55 million units, as well as the Lower Income Group (total household income is between 300,000 and 600,000 rupees), with a shortage of 7.41 million units. The Middle Income Group and above (households with a total annual income exceeding 600,000 rupees) face a shortfall of 0.82 million units. [40] [41]
See main article: Housing in Pakistan.
ProPublica in 2022 investigated the use of algorithms created by RealPage by rental companies across the United States to set rents, which critics worry has helped to raise rents by limiting competition.[42] The US DOJ escalated its investigation into price fixing in March of 2024.[43]
Another use of the term "housing crisis" refers to financial crises related to the housing sector. Rapid swings and especially declines in housing asset prices can cause shocks to credit markets, the banking sector, and the wider economy.[44]
Many homebuyers purchase housing on credit in the form of a mortgage, but changing economic conditions can leave them unable to pay back their loans. Guren and McQuade (2020) argue that widespread foreclosures can interact with the housing market to amplify declines in asset prices, leading to prices below levels determined by fundamentals: "When the housing market is hit by a shock that lowers housing demand and induces some foreclosures — for example a drop in employment . . . the dynamic interactions between falling prices, defaults, and credit constraints keep growing numbers of buyers out of the market. The scarcity of buyers lowers prices, intensifies the buyers’ market, and leads to a downward price-default spiral."[45]
See also: Subprime mortgage crisis and Chinese property sector crisis (2020–present).
In addition to long-run trends driven by fundamentals, house prices are also subject to asset cycles. Economists debate the causes of these cycles, but have studied links to changing beliefs about asset prices, broader economic conditions, credit constraints, and interactions with mortgage lenders. As part of an asset cycle, house prices can rise above levels determined by fundamentals ("Housing bubble"). During a correction, a financial-housing crisis can occur in the context of a downward price-foreclosure spiral. This "price-foreclosure spiral . . . pushes prices below their long-run level" leading to patterns such as the boom-bust-rebound of the 2000s housing cycle.[46] These foreclosure crises can have significant consequences for the wider economy.