Could Housing Become Even More Unaffordable?

A commonly used benchmark for housing affordability is that no more than 30% of income should be devoted to paying for one’s home.

The U.S. Department of Housing and Urban Development considers a household that spends more than that threshold as being cost burdened. Since America is the wealthiest society on the planet, one might think that a relatively small proportion of the populace would be cost burdened. But, of course, the fraction of cost burdened Americans is quite large.

According to one-year estimates from the Census Bureau’s American Community Survey, in 2023, 31% of American households were cost burdened, including 27% of households with a mortgage and 50% that rent.

The proportion of Americans who are cost burdened has been rising in recent years. In 2019, before the pandemic undid the economy, 48% of renters were cost-burdened as well as 24% of those with a mortgage. How did housing get so expensive and why are the operations of the free market producing deteriorating outcomes?

At the heart of the matter is the juxtaposition of supply and demand. While U.S. population growth has slowed over time, the number of households has increased. This occurs because household sizes have gotten smaller on average.

A central concept is the headship rate, which is the percentage of the adult population that forms their own household. From 2010 to 2017, there was a decline in headship rates among young adults (ages 18-34), with more young people living with their parents during the aftermath of the global financial crisis and in the midst of a protracted period of elevated residential foreclosure.

Eventually, that pattern reversed itself, helping to produce the housing shortage and rising costs that characterize the current situation. Between 2016 and 2021, the share of people heading households surged. Tabulations based on U.S. Census Bureau data indicate that over this period, rising headship rates “were responsible for about 640,000 of the 1.7 million average annual household growth” registered during that period. They add, “This came in sharp contrast to 2011-2016, when falling headship rates dragged down household growth by about 579,000 per year below the average levels that population growth alone would have generated.”

The fundamental issue is that housing supply often fails to respond to demand. Starting in approximately 2005, cracks began to show in what had been a housing boom. That boom turned out to be a bubble which popped in earnest in 2006 and 2007, setting the stage for the 2007-09 recession and the global financial crisis triggered by the collapse of Lehman Brothers on September 15, 2008. Housing production slowed further in response even as Millennials, America’s most populous generation, entered their thirties and eventually their forties.

The pandemic made matters worse. As Americans spent more time at home and were empowered to both work and shop from home, demand for housing surged further. But labor and materials costs surged in response to shifting labor market and supply chain dynamics.

Despite that, more new apartments were delivered in 2024 than in any other year since 1974, but many of these apartments came with high rents. In an environment characterized by high and rising project financing costs, often the only projects with pro formas penciling out were those associated with elevated rents. Thus, while apartment supply rose, affordability often did not improve.

More recently, there has been a steep slowdown in construction starts as stubbornly high financing costs and newly implemented tariffs on steel, aluminum, copper, and many other materials render fewer projects financially viable.

Recent NAHB survey data indicate nearly $11,000 in additional per-home costs from tariff implementation. Supplying housing that Americans can afford is not becoming easier, particularly given evidence that the U.S. economy is slowing. 

Lower interest will help, of course, but America faces a massive shortage in housing units that will take years to address. A recent Zillow analysis indicates that there exists a national deficit of approximately 4.7 million homes as of July 2025. Strict zoning laws play a part, and many NIMBY-led communities are not going to change those laws any time soon.

According to Zillow, the shortage increased in 2023 by another 159,000 units with new families forming faster than new homes were added. An estimated 8.1 million families are “doubling up”, which means they are sharing homes with non-relatives. Millennials account for 38% of these arrangements followed by Gen Z at 29%.

Not coincidentally, affordability has deteriorated sharply in recent years. A family earning the median income now requires a $17,700 raise to qualify for the typical home with a 20% downpayment. That reflects a market that is imbalanced. But the imbalances are more severe in certain communities.

For instance, New York City suffers from more than a 400,000-unit deficit, and the typical New Yorker would need an income boost approaching $100,000 to afford a typical home. Los Angeles, San Francisco, Washington, D.C., Boston, and Seattle are also associated with significant housing shortages and onerous income requirements.

Tariffs on Key Materials Won’t Help

In short, America needs a surge of home construction, particularly more affordable housing, in job rich markets. Instead, costs of key inputs are surging, putting downward pressure on future housing construction. Among these inputs are softwood lumber and copper.

Softwood Lumber

Softwood lumber remains the backbone of American residential construction, serving as the primary structural material for framing that determines both cost and schedule viability for most projects. The average new single-family home uses roughly 15,000 board feet of framing lumber, plus more than 2,200 square feet of softwood plywood and over 6,800 square feet of oriented strand board (OSB). This material dependency creates immediate vulnerability to supply shocks and policy changes.

Recent price volatility has been extraordinary, even by construction industry standards. Market analysis reveals lumber experienced dramatic boom-bust cycles during the pandemic period, with prices surging to historic peaks before collapsing equally precipitously as supply chains normalized and demand patterns shifted.

Current pricing data shows softwood lumber up 8.6% year-over-year, though down 2.6% month-over-month, reflecting ongoing market instability. The Department of Commerce’s August 2025 decision to more than double countervailing duties on Canadian softwood lumber from 6.7 to 14.6%, coupled with existing anti-dumping rates, now creates a combined 35.2% tariff burden.

Copper & Electrical Components

Copper applications in residential construction span wiring, plumbing, HVAC systems, and electrical components, making it indispensable for modern housing infrastructure. Current market data indicates significant upward pressure on copper-based construction materials, with both standard wiring products and power cables experiencing substantial price increases on both a monthly and annual basis.

The underlying copper market opened 2025 at $3.99 per pound, climbed to $5.22 in March, then plunged to $4.05 in April before recovering. This volatility directly translates to project cost uncertainty and procurement challenges.

Looking Ahead

Expect to meet many frustrated Millennials and GenZers during the years ahead. It may be best to avoid them. Failing that, know that they are frustrated by how expensive life has become even as AI and automation threaten to diminish opportunities to bolster income for many.