Summary: Americans have enjoyed extraordinary gains in material abundance, yet housing in recent decades stands out as a stubborn exception. Home prices in many parts of the United States have risen faster than incomes, placing growing pressure on renters and first-time buyers. The problem is not an inevitable market failure but the predictable result of supply constraints—especially land-use regulations—that can be reformed to increase affordability.

Americans have seen tremendous advances in the availability and abundance of material goods. As Marian L. Tupy and Gale Pooley from the Cato Institute have shown, the most basic necessity of food became eight times more affordable over the 100 years up to 2019, relative to average wages (the food inflation after 2019 set us back a little bit, but the long-run trends are still quite favorable). This increasing abundance is not limited to food alone, as a wide variety of finished goods have become much more affordable in recent decades.

These positive trends are well known for goods and even some services, such as cosmetic surgeries, but a common objection, both on social media and in real life, is: What about housing? That is a fair question, considering that Americans spend about 25 percent of their pre-tax annual income on housing, which has been a fairly constant share of their income for most of the past 125 years. Given the large share of the budget that housing costs represent, and the failure of housing to decline as a share of the budget as other necessities did, it is worth investigating the problem further.

On housing, the critics do have a point: Housing costs across the US and many other nations have quickly outpaced income growth in recent years. While we shouldn’t be nostalgic for the housing of the 1950s—houses were about half the size of today’s and had fewer amenities we now consider standard, such as air conditioning—nostalgia for the housing of 30 years ago might be justifiable.

Since 1994, two common measures of housing prices, the Case-Shiller Index and the US Department of Housing and Urban Development’s Median Sales Price data, have increased faster than most measures of income, including median family income and average wages. And unlike the change since the 1950s, the recent increase in housing prices can’t be primarily explained by houses getting bigger: The median square footage of new homes sold has increased only 16 percent since 1994 and has even been falling in the past decade.

Even more so, to the extent housing has become more expensive relative to wage growth in recent years, the trend could worsen over the next 30 years—unless we quickly change policy to allow the supply of housing to increase.

It may seem puzzling that housing could remain roughly the same share of income on average in the US, even as housing prices have increased faster than incomes in recent decades. This seeming puzzle can be resolved by thinking about two different kinds of households: renters and homeowners. While renters and homeowners may certainly be different in many ways—renters tend to be younger, poorer, and so on—there is a fundamental difference in how they experience increases in the price of housing. Renters are typically subject to new market-rate rents on a regular basis, often annually. However, if homeowners remain in the same house they are generally insulated from these changes, with only insurance and property taxes possibly increasing annually, not their principal and interest on the mortgage.

These intuitions are borne out in the data. According to the BLS Consumer Expenditure Survey, in 1984 the share of income that renters spent on housing was about 30.4 percent, which rose over the next four decades to 34.4 percent. Homeowners saw the opposite pattern, with the share of their income spent on housing falling from 27.7 percent in 1984 to 22.6 percent in 2024. The overall average has been fairly stable, but the experience of renters and homeowners has diverged.

The Facts of Housing Unaffordability

Historically, the rule of thumb in the United States is to spend no more than 30 percent of income on housing—though as we saw above, on average Americans spend less than that. But averages can obscure cost burdens for some households. According to an analysis of the Census Bureau’s American Community Survey data by Harvard’s Joint Center for Housing Studies (JCHS), fully one-third of US households spent over 30 percent of their income on housing, and 16 percent of households spent over half of their income on housing in 2024. The number of cost-burdened households has been steadily rising in recent years, as the price of both homes and rentals has increased faster than incomes in most of the US.

We can see the problem of rising home values relative to income by looking at another rule of thumb: Home prices should be in the range of three and five times a household’s annual income. In 1994, out of the United States’ 387 metropolitan statistical areas (MSAs), 263 had median home prices that were less than three times the median household income (the data once again come from Harvard’s JCHS). Only 12 MSAs in 1994—mostly in California and Hawaii—had ratios above 5.0.

Fast-forward to 2024, when there were 114 MSAs above the 5.0 ratio of median home prices to income, and those were scattered all over the country. Instead of being in just California and Hawaii, they were also in previously affordable states such as Montana, Wisconsin, North Carolina, and Arkansas. In 2024, the number of MSAs with price-to-income ratios below 3.0 had dwindled to just 32, many of them in the dying Rust Belt. And you don’t even need to go back to 1994 to see the dramatic change. As late as 2019, there were still well over 100 MSAs with a price-to-income ratio below 3.0.

While the majority (241 MSAs) are still within the suggested range of three to five times a household’s income, many are pushing toward the upper end of that range. Given the trend—the median ratio crept up from 2.65 in 1994 to 4.27 in 2024—it is not unreasonable to expect the ratio to continue to increase, absent any changes in policy.

The challenge of housing affordability is not unique to the United States. Using the home-price-to-income ratio from the Organisation for Economic Co-operation and Development (OECD), since 1994 the US saw home prices increase by 20 percent more than incomes did, meaning that housing is more expensive in real terms. Some other countries were in a much worse situation: Australia, Canada, and the United Kingdom all had over 80 percent increases in the ratio of housing prices to income. Not every country followed the same pattern, though. In New Zealand, the price-to-income ratio rose by 126 percent between 1994 and 2021. The ratio declined to 80 percent in 2024. And Japan’s price-to-income ratio fell by 25 percent from 1994 to 2024. However, even Japan has recently seen a modest increase in the ratio, by about 14 percent in the past decade. We’ll look at New Zealand and Japan in more detail below.

The Fix for Housing Affordability

But something can be done. While there have been several political solutions proposed, most of those focused on the demand side, such as subsidies to homeowners or renters. Those kinds of solutions are suboptimal because they increase demand, which will only further increase prices if supply does not also increase. The real problem is on the supply side: There is not enough new housing being built in the places people want to live and of the size people want. What is preventing additional building? In most of the US, it is land-use restrictions such as zoning and other policies that limit the density of new homes. Australia and countries across Europe have implemented similar policies that limit the construction of housing in various ways, primarily in the first half of the 20th century. Price increases did not show up immediately, because in most places restrictions were not binding constraints; there was plenty of land in favorable locations until recent decades.

A major restriction on the supply of housing comes in the form of single-family zoning, which prevents multifamily housing (everything from duplexes to skyscraper apartments) from being built in residential areas. A 2019 analysis by the New York Times found that about 75 percent of residential areas in US cities are reserved for single-family homes. In some cities that figure may reach over 85 percent. Of course, most families probably aspire to eventually own a single-family home, but the zoning laws force most land to be dedicated to this form of housing for everyone. That contributes to making housing unaffordable for many younger families today.

Land-use restrictions limit supply in ways that go beyond merely proscribing that most lots be reserved for single-family homes. For example, regulations will often require lots to be of a minimum size, which is counterproductive because land area is often the most expensive part of the property in urban settings, and the regulation forces families to purchase more land than they want. Regulations also set a maximum amount (a common range is 40–60 percent) of the lot that can be covered by the building itself, essentially forcing homes to have large lawns. Again, many families might want a large lot with a large lawn, but these regulations require it for everyone. The problem is that the less land dedicated to the home itself, the less land there is for other homes in the same area. These rules preclude single-family home types that were common in the past in large American cities, such as row houses or townhouses, which typically occupy most of the small lots they sit on.

Zoning Reforms Work

Would reforming land-use regulations really increase the supply of housing and make it more affordable? The available evidence indeed suggests it would.

One example of reform is New Zealand’s largest city, Auckland, which in 2016 reformed residential zoning to allow for more intensive housing—duplexes, triplexes, townhomes, and the like—on most residential land. This process is referred to as “upzoning.” The results were staggering: As documented in a paper published in the Journal of Urban Economics, construction boomed, with permits doubling in five years. The economists who studied this reform found that rents were 26–33 percent lower than they would have been without it. Rents kept skyrocketing in the rest of New Zealand but stabilized in the parts of Auckland that were upzoned. As mentioned above, New Zealand is notable for seeing its home-price-to-income ratio fall after 2021: As rents stabilized and incomes continued to grow, the ratio declined.

Another example comes from Houston, the fourth-largest city in the US. Houston has long been known as the shining example of a major US city that never adopted citywide zoning, even though some neighborhoods have private deed restrictions that incorporate features similar to zoning. But despite eschewing traditional zoning, Houston still has land-use regulations of various sorts. For example, like most cities, Houston prescribed a minimum lot size of 5,000 square feet. Because people would’ve been paying for more land than they needed, alternate forms of housing such as townhomes were less likely to be built.  First in 1998 and then in 2013, Houston reduced the minimum lot size to just 1,400 square feet in parts of the city. As Mercatus Center economist Emily Hamilton shows, there was a boom in construction following the reforms. Despite adding over 1 million people between 1970 and 2020, Houston still managed to have median home prices below the national average.

If Houston and Auckland demonstrate the power of local reform, Tokyo shows what is possible when a nation treats housing as essential infrastructure rather than a matter set by local competing interest groups. As urban scholar André Sorensen details in The Making of Urban Japan (2002), the country stripped municipalities of the power to block code-compliant projects, effectively turning zoning into a national “right to build” rather than a discretionary local negotiation. The results of this policy choice are astonishing. According to a 2016 analysis by the Financial Times, the city of Tokyo consistently builds more new housing each year than the entire state of California or the whole of England, despite having little empty land to spare. By removing the “veto points” that plague Western cities, Tokyo has achieved the status of a growing, vibrant mega-city where rents have remained flat for decades.

Allowing the Market to Increase Supply Keeps Housing Affordable

As families become richer and the population grows, there is increasing pressure on housing prices in desirable locales. The natural market response to increasing prices is to increase supply. Unfortunately, in much of the US and the rest of the developed world, governments have put artificial barriers in place to prevent this market response. While the housing shortage was created by the political process—through the establishment of zoning and other land-use regulations—the solution does not need to come from governments in the form of subsidizing demand. Instead, to unleash the forces of the market and human initiative, governments need to ease regulations on supply.

Land-use regulations are not the only interference in the market process that makes housing less affordable. Some forms of trade policy and protectionism can also harm home prices. For example, the National Association of Home Builders (NAHB) estimates that recent tariff increases for lumber and other inputs can add at least $10,000 to the average price of a home. Even more costly are building regulations, which the NAHB estimated could exceed $90,000 for a typical home in 2021 and were around 40 percent of the cost of multifamily housing such as apartment buildings. While not all of these regulations could be eliminated immediately, the best thing governments can do to address the affordability issue in housing is to figure out how they can get out of the way.

“Wedged between South American heavyweights Argentina and Brazil, Paraguay has long been ignored by the international community. Small, landlocked and poor, it was often seen as just a fly-over country.

So it’s a little surprising — to both those in the capital and in the region — that the country of 6.1 million people is suddenly having a moment…

Though roughly the size of California, Paraguay’s $47 billion economy is about 1% of the Golden State’s. But rapid growth and economic reforms in recent years helped the country win investment-grade credit status from Moody’s Ratings in 2024 and from S&P Global last year…

Last century, it was run as a dictatorship for 35 years — one of the longest in the region, whose fall in 1989 was followed by a tumultuous transition to democracy. But Paraguay’s embrace of sound fiscal and monetary policies after its 2003 financial crisis is now paying off, with single-digit inflation and annual growth averaging around 4% over the past two decades.”

From Bloomberg.

Summary: Free trade is often accused of being unfair and corrosive to democratic institutions, concentrating power in the hands of elites while leaving ordinary people behind. The evidence suggests the opposite. Participation in markets cultivates norms of fairness, impartiality, and trust that strengthen democratic institutions and expand individual rights.

In earlier essays, I argued that trade makes us more prosperous, more trusting, and less corrupt. But isn’t trade unfair? Doesn’t the constant churn of global competition take power out of the hands of ordinary people and place it in the hands of wealthy individuals and corporations? Is democracy dying a slow death from the disease of globalization? As I show in this essay, the answer to each of these questions is an emphatic no. Trade, it turns out, strengthens democratic institutions and encourages more impartial treatment of one another. Overall, the complexity of the globalized economy has made us a much fairer bunch.

The French philosopher Montesquieu wrote, “The spirit of commerce produces in men a certain feeling for exact justice.” As Middlebury political scientist Keegan Callanan notes, Montesquieu believed that everyday trade trains us in habits of fair dealing. Over time, these small, routine acts of fairness cultivate a broader sense of exact justice that extends far beyond the marketplace. And researchers have tried to test this philosophical hunch.

Take the Ultimatum Game as an example. In this experiment, two participants are provided a specific sum of money. One participant is granted the power to divide the sum between the two. If the other player accepts the division—whether it is 50:50 or 99:1—both players keep their share. If the receiver rejects the offer, both go home empty-handed. Harvard anthropologist Joseph Henrich has found that proposers from industrial societies (e.g., United States, Indonesia, Japan, and Israel) tend to make offers between 44 and 48 percent, while the Machiguenga of the Peruvian Amazon offer only 26 percent.

Experiments by Henrich and fellow researchers involving 15 small-scale agrarian societies—consisting of hunter-gatherers, horticulturalists, nomadic herders, and sedentary farmers—have also shown that groups more heavily immersed in trade and market exchange with outsiders are less likely to make inequitable offers. Later experiments confirmed “that fairness (making more equal offers) in transactions with anonymous partners is robustly correlated with increasing market integration.”

Within the Ultimatum Game, however, there is still a risk for the proposer: the possibility of going home with nothing if the offer is too small. A proposer might therefore make a more generous offer out of self-interest simply as a strategy to avoid missing out on free money. To explore how deeply rooted this sense of fairness is, Henrich and his colleagues added the Dictator Game to their experiments. In this economic game, the receiver has no opportunity to reject the offer: they get whatever they are given. Yet even under these new rules, Henrich reported that  

people living in more market-integrated communities again made higher offers (closer to 50 percent of the stake). People with little or no market integration offered only about a quarter of the stake. Going from a fully subsistence-oriented population with no market integration…to a fully market-integrated community increases offers by 10 to 20 percentile points [see Figure 1].

Even when fairness and generosity have no strategic payoff, market integration predicts more equal treatment.

Figure 1. Dictator Game offers and market integration

As Montesquieu observed, the habits of fairness developed through everyday trade can extend well beyond the marketplace. Over time, they spill into our civic and political institutions. Democratic governments, in particular, seek to concretize fairness through their procedures and protections. This may help explain why the 2025 Index of Economic Freedom report finds a positive relationship between economic freedom and democratic governance (see Figure 2). Economic freedom, it argues, is “an important stepping stone on the road to democracy.”

Figure 2. Economic freedom and democratic governance

Research has consistently shown trade and market exchange to be champions of democracy. Economists Marco Tabellini and Giacomo Magistretti found that economic integration with democratic countries significantly boosts a country’s democracy scores (see Figure 3). Trade not only transmits goods and services across borders, but also democratic values and institutions. Studies by University of Maribor sociologist Tibor Rutar have also found a positive relationship between trade openness and democracy. Economic freedom has been shown to improve the durability of democratic institutions, while democratic backsliding is often preceded by restrictions on the economy. Political and civil liberties struggle to survive under a heavy-handed state, yet flourish with the expansion of economic freedom (see Figure 4). All in all, democracy and global capitalism appear to be two peas in a pod. As AEI’s Michael Strain explains:

It is no surprise that the rise of populism and economic nationalism has coincided with growing skepticism toward liberal democracy and growing comfort with political violence. The erosion of economic liberalism – free people, free markets, limited government, openness, global commerce – reflects a loss of respect for the choices people make in the marketplace. If we devalue choices made in markets, why wouldn’t we devalue choices made at the ballot box?

Figure 3. Trade with democracies and democratization

Figure 4. Economic freedom and personal freedom

Consider a specific case of unfairness: gender inequality. Generally, fairness is about impartial treatment between various groups. Gender inequality, however, is about impartiality within a group. In Sex and World Peace, Texas A&M’s Valerie Hudson and her colleagues argue that women are often treated as “the boundaries of their nations” because “women physically and culturally reproduce their group.” Far from being outsiders that are merely tolerated, women are seen as the creators and perpetuators of the group itself. “Indeed,” Hudson and her coauthors explain, “this is one of the reasons why the symbol of a nation is often personified as a woman, in order to elicit these deep feelings of protection. A woman becomes a ‘protectee’ of the men of the group, especially those in her own family.”

Unfortunately, the desire to protect women often translates into controlling them. In order to preserve the supposed cultural integrity of the in-group, women’s freedom is restricted. Their behavior becomes closely bound to the honor of their family and community—especially the men of both.

Greater exposure to the global economy, however, weakens this unfair patriarchal hold. For example, political scientists David Richards and Ronald Gelleny explored the effects of economic globalization—measured by foreign direct investment, portfolio investment, trade openness, and IMF and World Bank structural adjustment policies—on what they termed “women’s status” or women’s ability to fully exercise specific rights found in the corpus of international human rights law. Overall, they found that “sixty-seven percent of the statistically significant coefficients indicated an association with improved women’s status.” Similar measures—along with additional indicators such as the number of McDonald’s restaurants and IKEA stores per capita—are associated with improvements in women’s decision-making power within households, freedom in movement and dress, safety from physical violence, ownership rights, and declines in son preference and the number of “missing women.”

Supporting these findings, political scientists Eric Neumayer and Indra de Soysa have shown that increased trade openness reduces forced labor among women and increases their economic rights, including equal pay for equal work, equality in hiring and promotion practices, and the right to gainful employment without the permission of a husband or male relative. Other studies reach similar conclusions. Analyzing global data from 1981 to 2007, Neumayer and de Soysa also found that increased trade openness improves both economic and social rights, including the right to initiate divorce, the right to an education, and freedom from forced sterilization and female genital mutilation.

A study published in the journal International Organization examined four measures of women’s equality: (1) life expectancy at birth, (2) female illiteracy rates among those over age 15, (3) women’s share of the workforce, and (4) women’s share of seats in parliament. The study found that international trade and investment led to improvements in women’s health, literacy, and economic and political participation. The evidence makes clear that economic freedom matters for the well-being of women everywhere (see Figure 5).

Figure 5. Economic freedom and gender equality

Unfairness is one of the most common criticisms leveled against commercial society, often accompanied by claims that it undermines democracy and fosters partiality. The evidence presented here suggests the opposite. Engaging in trade and market exchange teaches us to treat others more generously and impartially. The natural outcome of these values is the institutional protection of certain rights. Fair treatment for all becomes the name of the game. We begin to trust one another’s choices and to believe in our shared ability to build society together.

“Mr. Isaczai highlighted that the country which was devastated by war following the invasion of 2003 now has increased confidence in its institutions and is moving towards greater stability.

He said Iraq has seen a reduction in poverty from 20 per cent in 2018 to 17.5 per cent in 2024-2025 and that preliminary reports suggest the country now ranks high on the Human Development Index, which measures life expectancy, education and standard of living.

Additionally, an improved security environment has enabled five million internally displaced people (IDPs) to return home, while those remaining in camps do so mostly because of housing or civil identification issues. 

Finally, he noted an ‘important milestone’ when the country held parliamentary elections last year with a 56 per cent voter turnout – a 12 per cent increase from the previous national vote – with around a third of the candidates being women.”

From United Nations.