Affordability Crisis, or Budgetary Buffoonary?
AI GENERATED / JEREMY CURATED
Is there really an affordability crisis, or are young people just wasting money on avocado lattes and designer costumes for their pets? While those $7 coffees and rhinestone-studded dog sweaters make tempting scapegoats, the math doesn't add up. Even if you eliminated every brunch and pet accessory, you wouldn't come close to closing the gap between what young people earn and what it costs to keep a roof over their heads.
Why rent exploded
The single biggest driver of the affordability crisis is housing. Rent hasn't just crept up—it's skyrocketed, and the reason is brutally simple: not enough homes are being built, and the ones that do get built are priced for the luxury market.
When home prices climb out of reach, would-be buyers stay renters. This floods the rental market with competition, giving landlords pricing power. Meanwhile, when landlords' property values and mortgage costs rise, they pass those costs straight through to tenants.
Add to this a surge of real estate investors—everyone from Wall Street firms to small-time landlords—who bought up housing at record levels during the 2021–2022 boom. They weren't just buying apartment buildings; they were scooping up single-family homes, townhomes, and condos, further tightening supply and pushing rents higher.
Since 1960, inflation-adjusted median home prices have increased by over 120%, while inflation-adjusted median household income has grown by under 30%.
This creates a political trap: A politician who successfully lowers housing prices by 20% or 30% helps prospective buyers, but simultaneously shrinks the net worth of existing homeowners. For roughly 65% of American households, their home is their primary financial asset and retirement nest egg.
Why building is broken
Building more homes is the obvious fix—economists universally agree. But the U.S. faces a cumulative deficit of over 4 million homes after more than a decade of underbuilding. Here's why we can't just build our way out overnight.
When a builder proposes multi-family or starter housing, local residents frequently organize against it at town hall meetings, citing parking shortages, school crowding, increased traffic, or changes to "neighborhood character." This "Not In My Backyard" (NIMBY) resistance stalls or kills projects before they break ground.
When land and permitting cost $75,000 before breaking ground, a builder cannot make a viable profit selling a small $200,000 entry-level home. As a result, developers concentrate their resources on high-end homes and luxury multi-family units where margins are wide enough to absorb overhead costs.
The 2008 crash wiped out thousands of small and mid-sized homebuilders. The surviving builders adopted far more conservative business models, further constraining supply.
Washington D.C. cannot rewrite a suburban city's zoning laws or building permits. Land-use power rests with tens of thousands of individual city councils, planning commissions, and town boards. Because local city councils frequently stall development, state legislatures and federal agencies are stepping in with preemptive reforms.
If we could actually fix this—streamline permits, kill exclusionary zoning, and flood the market with starter homes and multi-family housing—rents would drop dramatically. Housing is the single largest line item in most household budgets. Cut that by 30% or 40%, and suddenly people have breathing room. More income for savings, for starting businesses, for actually building wealth instead of handing it to landlords month after month.
Unlocking mass home construction requires systematic reforms: land-use deregulation (permitting "YIMBY" density reforms), cutting red tape to shorten approval windows, expanding trade training programs, and subsidizing lower-margin entry-level housing.
Why wages haven't kept up
Even if housing were affordable, wages have fundamentally failed to keep pace with economic growth. The divergence between worker pay and productivity—often called the "Great Decoupling"—began in the late 1970s. Between 1948 and 1979, real wages and worker productivity grew virtually in lockstep. However, since 1979, productivity in the U.S. grew by roughly 90%, while typical median worker compensation grew by only about 33%.
In previous decades, a larger share of every dollar of economic output went directly to labor—wages and worker benefits. Today, a greater portion of business revenue flows to capital: shareholder dividends, stock buybacks, executive compensation, and reinvestment in corporate assets, rather than rank-and-file pay.
Declining bargaining power
Worker leverage in wage negotiations has eroded over the last four decades due to several policy and structural shifts:
- Union Density: U.S. union membership dropped from over 20% in 1983 to around 10% today, reducing collective bargaining leverage across entire industries.
- Minimum Wage Erosion: The federal minimum wage has not been raised since 2009, allowing its real purchasing power to erode against inflation.
- Globalization & Offshoring: Expanded global supply chains exposed domestic labor to global competition, restraining wage increases in manufacturing and routine service sectors.
The "China Shock"
When global supply chains opened up, multinational corporations gained the ability to relocate production to regions where labor costs were a fraction of domestic rates. This created a global wage arbitrage: domestic workers were no longer just competing against the person down the street—they were competing directly against workers in emerging economies willing to perform similar tasks for significantly lower wages.
The credible threat of offshoring fundamentally altered wage negotiations. When domestic workers or unions pushed for higher pay, benefits, or safety standards, employers could credibly point to foreign alternatives. This dynamic capped wage growth across entire sectors.
The healthcare squeeze
A primary reason wages feel stagnant is the sky-rocketing cost of employer-sponsored healthcare. As health insurance premiums and medical costs surged, employers absorbed these expenses into overall compensation packages, effectively freezing take-home cash raises to cover rising benefit overhead.
When an employer allocates a dollar to benefits, that is a dollar they cannot allocate to cash wages. Out-of-pocket health insurance premiums and deductibles have dramatically outpaced wage growth over the last 30 years.
Massive health system consolidation—mergers and acquisitions—over the past three decades created regional monopolies. With few competing hospitals in a given area, large health systems gain immense bargaining leverage to negotiate higher reimbursement rates from private insurers. As the Baby Boomer generation aged, the overall volume of medical care required across the insured population expanded significantly, further straining the system.
Key takeaways
- Rent exploded because we're not building enough homes, and the ones we do build are luxury units that don't help entry-level renters.
- Building is broken due to NIMBY resistance, permitting red tape, and financial structures that make starter homes unprofitable.
- If we could actually build housing at scale, cutting the biggest line item in household budgets would free up massive amounts of income.
- Since 1979, U.S. productivity grew by 90%, while typical worker compensation grew by only 33%—wages haven't kept pace with economic growth.
- Global wage competition, declining union density, and healthcare cost inflation gutted worker bargaining power and absorbed potential raises.
The affordability crisis isn't about avocado toast or pet costumes. It's about structural economic shifts that broke the relationship between work, wages, and the cost of keeping a roof over your head. Fix housing supply, and you fix the biggest piece of the puzzle.