Why Housing Is Unaffordable in 2025: The Five Forces Squeezing Buyers and Renters

The median home price in the U.S. has risen 40% since 2020, while median incomes rose about 12%. Simple math says housing should be getting more affordable as the economy grows, but five powerful economic forces are working against ordinary families.

Force 1: The Fed's Interest Rate Roller Coaster

When interest rates were near zero (2020-2022), anyone with decent credit could get a 2.5-3% mortgage. Monthly payments on a $300,000 house were about $1,200. Today's 7% rates make that same house cost $2,000/month - a 67% increase in monthly payment for the exact same house.

Existing homeowners with low-rate mortgages won't sell (losing their 3% rate to get a 7% rate makes no sense), reducing supply exactly when higher rates reduce demand. It's a market freeze that keeps prices artificially high.

Force 2: The Investor Invasion

Institutional investors now own 300,000+ single-family rental homes, up from virtually zero before 2010. Companies like BlackRock and American Homes 4 Rent can outbid individual families because they're buying cashflow, not homes.

They'll pay $50,000 over asking because they're calculating rental yield over 20+ years. A family buying a home to live in can't compete with that math, especially when the investor can pay all cash.

Force 3: The Zoning Straightjacket

Over 75% of residential land in major cities is zoned for single-family homes only. No duplexes, no small apartment buildings, no townhomes. This artificial scarcity drives up land values and forces developers to build expensive single-family homes or large apartment complexes - nothing in between.

Cities that allow "missing middle" housing (duplexes, fourplexes, small apartments) have much more affordable housing. But most cities protect single-family zoning like a sacred cow, even as they complain about housing costs.

Force 4: Construction Cost Inflation

Building materials costs rose 30-50% from 2020-2024. Lumber, steel, concrete, labor - everything costs more. It now costs $150-200 per square foot to build in many markets, meaning a modest 1,500 sq ft home costs $225,000-$300,000 just to construct (before land, permits, and profit).

Developers can't build "affordable" housing when construction alone costs $300,000. They build luxury homes where they can charge $500,000-$600,000, or they don't build at all.

Force 5: The Permit Protection Racket

Getting permits to build housing takes 12-24 months in many cities, costs $50,000-$100,000 in fees, and requires navigating dozens of bureaucratic hurdles. Each delay increases carrying costs for developers, who pass those costs to buyers.

Environmental reviews, neighborhood input meetings, design review boards, and impact studies can add $100,000+ to housing costs before a single nail is hammered. The process designed to "protect" communities prices out the people who need housing most.

Why It's Getting Worse

These forces feed on each other. High prices attract more investors, which increases prices further. Expensive housing makes construction workers move away, increasing labor costs. NIMBYism grows stronger as existing homeowners see their home values rise and want to protect them.

Meanwhile, an entire generation is priced out of homeownership, forced to rent apartments that themselves cost 30-50% of income. The American dream of homeownership is becoming a luxury good.