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Housing crisis

Acute failures in the housing market

  • 9 min read
  • 3 chapters

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Through Zoning, Slum and COVID-19 pandemic

Lab · Class 6–12Sociology: Individual & Society

There is an ongoing decades-long increasing trend of cities around the world facing housing crises. Some notable examples of financial crises in the housing market are the American subprime mortgage crisis in 2007–2008 and the Chinese property sector crisis beginning in 2020.

The consensus in economic research is that housing shortages are caused by supply constraints such as zoning regulations, NIMBY policies and rising construction costs.

Global

As per 2026, in much of the world, incomes are too low to afford basic formal housing, as housing expenses have increased faster than wages in many cities, especially since the 2008 financial crisis. In some places, this leads to informal settlement in slums or shantytowns, while in others such informal settlements are prohibited. Even regions that are not experiencing an overall housing shortage may experience shortages for specific segments of the population, such as in affordable housing for very-low income populations or permanent supportive housing for those with disabilities.

Causes

Economists debate the causes of the crisis. In 2022, economists Christian Hilber and Olivier Schöni found that the primary strand in this debate argues that supply constraints such as land use restrictions prevented the meeting of growing housing demand, resulting in higher housing costs. Others strands in the debate found causes in macroeconomic factors, financing conditions, and poor forecasting of expected prices. People's poor earnings also contribute to the global crisis.

According to research, overly restrictive zoning drives up housing prices by limiting the number of areas where construction is allowed. Studies have found, for example, that restrictive zoning can make homes more than 50% more expensive than the actual cost to build them. Building codes have also been criticized for exacerbating the housing crisis by raising the cost of new housing.

A study by Moody's Analytics found that the main causes of the crisis also included shortages of labor and materials. The COVID-19 pandemic may also have exacerbated the crisis. In some places, refugee crises are a contributing factor.

Although major cities around the world face housing shortages, substantial variation exists across countries and across planning systems. 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 (by reducing the power of local governments to block new construction projects) 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. Developed European countries, which favor higher density construction than Anglophone countries, have followed an intermediate path between these two.

Impacts

Housing crises have contributed to social unrest in cities around the world. They 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. 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.

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