The term housing crisis refers to acute failures in the housing market at a given place and time. Depending on the context and the speaker, the term has taken on substantially different meanings.^[1] A prominent current use, for example, refers to shortages of available housing in the United States and other countries, but it has also been used to describe financial crises related to the real estate sector.

Following the first definition, the term “Housing crisis” or “affordability crisis” is currently used in the United States and other English-speaking countries to refer to widespread shortages of housing in certain regions where people want to live. These shortages, caused in part by regulatory barriers to new construction, have had consequences such as elevated regional homelessness, housing insecurity, and high housing costs. Within this context, the term housing crisis has been applied to a number of different manifestations, with different causes and consequences. One California housing researcher, for example, chronicled at least thirteen ways in which the term “housing crisis” has been applied to shortage and affordability issues, indicating that there is not one “housing crisis” but instead a “web of problems and dysfunctions”.^[2] Even in regions that are not experiencing an overall housing shortage, for example, the term housing crisis has been used to refer to a shortages for specific segments of the population, such as a shortage of dedicated affordable housing for very-low income populations or permanent supportive housing for those with disabilities.

As a second definition, the term has also been used to refer to financial crises tied to the housing sector, conceptually distinct from issues related to housing shortages. In the past, the term was used in the United States to refer to problems in the financial sector related to instruments tied to housing, such as the sub-prime mortgage crisis of 2007-2008. Similarly, “housing crisis” has been used to describe financial problems in the Chinese property sector that began in 2020 and are ongoing.

“Housing crisis” as shortage and affordability crisis

The first use of the term “housing crisis” discussed here refers to the related issues of decreasing housing affordability and worsening housing shortages.

Global housing crisis

Cities around the world are facing an “affordability crisis” as part of a long run trend that has persisted for decades.

Economists debate the causes of this affordability crisis. The state of the debate as of 2022 was summarized by economists Christian Hilber and Olivier Schöni in a contribution to the Oxford Research Encyclopedia of Economics and Finance:

“Three strands of the literature can be distinguished. The first is a strand of the urban economics literature, which highlights the importance of local long-run supply constraints, especially land use restrictions, in conjunction with local longrun demand growth, as crucial determinants of high and growing house costs. The second strand emphasizes macroeconomic factors and financing conditions. It argues that a unique macroeconomic environment with a decline in the real rate of interest (influenced by central banks) or unprecedented availability of housing credit may explain a significant fraction of the increase in house prices over the last two decades. The third strand focuses on the role of unrealistic expectations about future house price growth.”^[3]

Of the three strands, “the main underlying cause for the ‘affordability crisis’, which has been mounting for decades, is a combination of strong and growing demand for housing in desirable areas in conjunction with tight long-run supply constraints, both physical and man-made regulatory ones.”^[3]

Although major cities around the world face housing shortages, leading to the use of the term “Global housing crisis,” substantial variation exists across countries and across planning systems.^[4] 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 and easy permitting for housing construction. 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 a path intermediate between these two.^[5]

Current U.S. housing crisis (shortage and affordability crisis)

The United States currently faces a housing crisis defined by shortages of housing that differ in scope and effect depending on region or segment of the population.

Market-wide housing shortages in high-demand areas

Decades of under-building in economically prosperous metros has led to regional housing shortages with national implications. In the 19th century, housing development in the United States was characterized by rapid urban growth in economically productive places.^[6] Throughout the 20th century, however, a number of regulations that were designed to block in-fill and direct greenfield development took hold, such as exclusionary zoning. These regulations had the net effect of reducing housing construction and reducing the ability of regional housing stock to adjust to changing market conditions. Beginning in the last quarter of the 20th century, market-wide housing shortages have existed in a growing number of markets throughout the country, starting in prosperous coastal regions, such as Boston, New York, or the California Bay Area.^[7] In the last two decades, these shortages have spread from coastal superstar cities to affect broader areas of the country, so that on average there is a deficit of housing nationwide.^[8] Rental vacancy rates, for example, which are one marker of the balance of housing supply, have declined across the country. While, in a balanced market, rental vacancy rates should fall between 7 and 8 percent, only one U.S. census region, the South, achieved target levels on average in its metro areas as of 2021.^[9]

These regional housing shortages have had nationwide effects. Rates of migration within the United States have fallen, housing costs have risen in areas that would otherwise provide quality jobs, and incomes from region to region have increasingly diverged.^[6]

Within areas experiencing these shortages, effects are especially acute among the young, the poor, among renters, those living in crowded conditions, and those experiencing homelessness. Areas with market-wide housing shortages have significantly higher rates of homelessness than those with adequate or surplus housing stock: Variations in rent-levels and vacancies are chief factors explaining regional variations in homelessness rates.^[10]

Specific regional housing shortages

For more information on specific regional housing shortages, see the articles for California and New York in this encyclopedia:

• California housing shortage
  • San Francisco housing shortage
  • Affordable housing in Silicon Valley
• New York City housing shortage

Additional regional housing shortages are discussed in articles addressing the homelessness crisis:

• Housing insecurity in the United States
• Homelessness in the United States
  • Homelessness in California
    • Homelessness in the San Francisco Bay Area
  • Homelessness in Colorado
  • Homelessness in Florida

Nationwide shortages of dedicated-affordable and supportive housing

In addition to market-wide housing shortages in certain regions of the United States, the term “housing crisis” has been used to describe persistent shortages of non-commodity and supportive housing provided to vulnerable members of the population. Even in regions with relatively abundant market-rate housing, the market can fail to supply safe and sufficient housing to populations with very low income or disabilities that impair independent living. Insufficient public funding has contributed to a distinct housing crisis affecting these groups.^[11][12] Even regions with relatively abundant housing supply and low rates of homelessness, such as Mississippi, face challenges with street homelessness due to factors like addiction, as well as issues with housing quality.^[13]

Shortages of housing affordable housing are discussed in the article “Housing gap” under the section “United States.”

“Housing crisis” and related housing justice issues

In addition to shortage and affordability issues, the term “housing crisis” has been used for overlapping concepts such as a “fair housing crisis,” involving residential discrimination and effects of segregation; an “eviction crisis”; issues of gentrification and displacement; and environmental concerns. Eviction, displacement, and forms of housing inequality are worsened by and related to the shortage and affordability crisis, but also have causes of their own and require distinct solutions.^[2][14]

Housing crises in other countries (shortage and affordability crises)

United Kingdom

Market-wide housing shortages in high demand regions

The United Kingdom faces regional shortages of housing, with undersupply and high demand in the south, relative to more abundant housing in economically depressed areas of the north.^[15]

• Affordability of housing in the United Kingdom
  • Welsh housing crisis, see Housing and construction in Wales

See also:

• Housing crisis in Brazil
• Canadian housing crisis
• Housing in Pakistan

Historic housing crises (shortage and affordability crises)

• Amsterdam coronation riots, squatter revolt at the peak of the 1980s Dutch housing crisis
• 1990s Albanian housing crisis, post-Communist housing shortage, discussed briefly in “Bunkers in Albania,” which were a competing object of government investment and later an (occasional) source of informal housing.

“Housing Crisis” as financial crisis related to the housing sector

A distinct use of the term “housing crisis” refers to financial crises related to the housing sector. Rapid swings in housing asset prices can cause shocks to credit markets, the banking sector, and the wider economy.^[16]

Foreclosure crises

Many homebuyers purchase housing on credit in the form of a mortgage, but changing economic conditions can leave them unable to pay back their loans. Guren and McQuade (2020) argue that widespread foreclosures can interact with the housing market to amplify declines in asset prices, leading to prices below levels determined by fundamentals: “When the housing market is hit by a shock that lowers housing demand and induces some foreclosures — for example a drop in employment . . . the dynamic interactions between falling prices, defaults, and credit constraints keep growing numbers of buyers out of the market. The scarcity of buyers lowers prices, intensifies the buyers’ market, and leads to a downward price-default spiral.”^[17]

Asset cycles and housing crises (financial)

In addition to long-run trends driven by fundamentals, house prices are also subject to asset cycles. Economists debate the causes of these cycles, but have studied links to changing beliefs about asset prices, broader economic conditions, credit constraints, and interactions with mortgage lenders. As part of an asset cycle, house prices can rise above levels determined by fundamentals (“Housing bubble“). During a correction, a financial-housing crisis can occur in the context of a downward price-foreclosure spiral. This “price-foreclosure spiral . . . pushes prices below their long-run level” leading to patterns such as the boom-bust-rebound of the 2000s housing cycle.^[18] These foreclosure crises can have significant consequences for the wider economy.

These crises are discussed generally under Housing bubble as well as the following articles:

Specific housing-related financial crises

• The 2007 Subprime mortgage crisis in the United States
• Chinese property sector crisis (2020–present)

See also

• Housing inequality
• Housing bubble
  • 2000s United States housing bubble
    • Subprime mortgage crisis 2007–2010
  • 2008–2012 Israeli housing bubble
• Single-family zoning
• Missing middle housing

References