The Housing Crisis: How We Got Here and What Comes Next

By Futurist Thomas Frey

Housing has become the defining economic battleground of our era. A Gen Z worker in San Francisco needs to earn $200,000 annually to afford a median-priced home. In Sydney, Toronto, London, and dozens of other cities, home ownership has transformed from middle-class expectation to luxury reserved for the wealthy or those with family money.

This isn’t a temporary market fluctuation. It’s a structural crisis decades in the making, accelerated by technology, exacerbated by policy failures, and threatening the social contract that promised each generation could achieve what their parents had.

Understanding how we arrived here—and how we escape—requires examining who’s at fault and what solutions might actually work. The answer is more complex and more solvable than most coverage suggests.

How We Got Here: The Perfect Storm

Zoning as Economic Weapon: Starting in the 1970s, existing homeowners weaponized zoning laws to restrict new housing supply. Single-family zoning locked up vast urban land for low-density development. Height restrictions prevented density. Minimum lot sizes and parking requirements made affordable housing financially impossible. Every NIMBY victory restricting new development enriched existing owners while pricing out newcomers.

Financialization of Housing: Housing transformed from shelter to investment asset. REITs, institutional investors, and private equity discovered that rental housing generates reliable returns. By 2025, institutions own 30%+ of single-family rentals in many markets—up from nearly zero in 2000. They can outbid individual buyers, pay cash, and wait for appreciation. Housing became financial product, not human necessity.

AI-Powered Market Domination: Algorithmic pricing systems now determine rents across markets. AI analyzes millions of data points to optimize prices, identifies undervalued properties instantly, and enables institutional investors to operate at scales impossible for humans. The efficiency that makes markets work also makes them ruthlessly extractive—algorithms don’t care about affordability, only maximizing returns.

Constrained Supply, Infinite Demand: Cities where jobs concentrate—San Francisco, New York, London, Sydney—face geographic constraints and political opposition to density. Meanwhile, global capital seeks stable investments, and housing in desirable cities is the ultimate safe haven. Limited supply meets functionally unlimited demand from global wealth. Locals can’t compete.

Monetary Policy Consequences: Decades of low interest rates made borrowing cheap, inflating asset prices including housing. Wealthy buyers and institutions benefited enormously. First-time buyers found themselves priced out despite low rates because prices rose faster than incomes. When rates increased to fight inflation, affordability got worse, not better—payments increased without prices dropping proportionally.

Construction Cost Inflation: Building costs have increased faster than general inflation due to material costs, labor shortages, and regulatory complexity. Even when zoning allows construction, economics don’t work for affordable housing. Developers build luxury units because only high-end developments generate sufficient returns to justify costs.

Wage Stagnation vs. Asset Appreciation: Wages have grown 20-30% since 2000 in most developed nations. Housing prices have grown 100-300% in desirable markets. The gap is mathematically insurmountable for workers without existing wealth or family support.

Who’s Actually at Fault

The answer: almost everyone, in different ways.

Existing homeowners who vote against new housing to protect property values and neighborhood “character” while claiming to support affordability.

Local governments that bow to NIMBY pressure, maintain exclusionary zoning, and make permitting so complex and expensive that only large developers can navigate it.

Institutional investors that treat housing as financial product rather than human necessity, optimizing for returns rather than community stability.

National governments that failed to build social housing at scale, allowed financialization to proceed unchecked, and used monetary policy that inflated assets while wages stagnated.

Tech companies that concentrated high-paying jobs in specific cities without ensuring housing infrastructure could scale accordingly.

AI and algorithms that optimize market efficiency in ways that maximize extraction and price discovery, making markets work perfectly for owners while crushing renters and aspiring buyers.

But assigning blame doesn’t solve the problem. We need solutions that work within political and economic realities.

How This Gets Corrected: Multi-Pronged Solutions

Radical Zoning Reform: Cities must legalize density by right—no discretionary review, no neighborhood veto. Upzone near transit. Allow 4-6 story buildings throughout urban areas. Eliminate parking minimums and single-family-only zoning. Tokyo’s approach—allowing by-right construction with minimal restrictions—results in stable housing costs despite population growth. Cities that continue restrictive zoning will continue unaffordable housing. It’s that simple.

AI-Powered Construction Revolution: The same AI driving investors can revolutionize construction. AI-designed buildings optimized for cost and speed. Robotic construction reducing labor costs 40-60%. Modular and prefabricated systems manufactured at scale. 3D-printed housing for specific applications. Construction technology must advance as rapidly as AI pricing algorithms. By 2035, we should be able to build housing 50% cheaper and 3x faster than today. That changes economics fundamentally.

Public and Social Housing Renaissance: Vienna provides world-class social housing for 60% of residents through city-owned developments that aren’t means-tested ghettos but attractive mixed-income communities. Singapore achieves 90% homeownership through government-built housing sold at cost to citizens. The U.S. and other Anglo nations abandoned social housing in the 1980s. Bringing it back at scale—millions of units over a decade—is politically challenging but economically feasible and morally necessary.

Institutional Investor Regulation: Tax advantages for owner-occupiers. Restrictions on bulk purchases by institutions. Requirements that institutional owners maintain units rather than letting them deteriorate. Some jurisdictions should simply ban institutional ownership of single-family homes—housing is too important to be purely financial product.

Community Land Trusts and Alternative Ownership: Housing where land is owned by community trusts and only buildings are sold, keeping housing permanently affordable. Cooperative housing where residents collectively own buildings. These models remove housing from speculative markets while maintaining resident stakes and investment.

Remote Work Decentralization: Allowing remote work reduces pressure on expensive coastal cities while revitalizing declining regions. This requires investment in broadband, amenities, and community infrastructure in second and third-tier cities. The pandemic proved remote work viability. Policy should encourage geographic dispersion rather than fighting it.

AI-Optimized Land Use: The same AI that prices housing efficiently can optimize land use—identifying underutilized parcels, designing optimal density patterns, coordinating infrastructure and housing development. Use AI for planning and construction, not just extraction.

Taxing Land Value, Not Improvements: Tax the land value, not building value. This incentivizes development and penalizes speculation. Holding empty lots in expensive areas becomes uneconomical. Developing them densely becomes advantageous. This is economically sound but politically difficult—existing owners resist.

The 2040 Scenario: Better But Not Fixed

By 2040, if we implement aggressive reforms:

Construction revolution: AI-designed, robotically-built housing costs 50% less than 2025 construction. Permitting streamlined through AI systems that check code compliance automatically. Housing production triples in progressive jurisdictions.

Zoning transformation: Major cities have upzoned significantly. 4-6 story mixed-use buildings are standard near transit. Single-family-only zoning is rare and controversial.

Public housing resurgence: Millions of social housing units built in major metros. Mixed-income developments that don’t stigmatize residents. Housing as right, not just market commodity.

Institutional regulation: Limits on bulk buying by investors. Tax structures favoring owner-occupiers. Housing supply has increased enough that institutional advantage diminishes.

Geographic distribution: Remote work has distributed population more evenly. Pressure on expensive coastal cities reduces. Second-tier cities thrive with quality housing, good jobs, and livable costs.

Result: Housing affordability improves significantly but doesn’t return to 1970s levels. Ownership rates increase from historic lows. Younger generations can afford homes, though not as easily as Boomers. Crisis becomes manageable challenge rather than existential threat.

The Pessimistic Scenario: Continued Deterioration

If reforms don’t happen—if NIMBYism prevails, construction doesn’t revolutionize, and governments don’t build public housing—we get:

Permanent renter class comprising 60%+ of population. Home ownership becomes hereditary—you inherit it or you don’t achieve it. Social mobility collapses. Geographic sorting by wealth intensifies. Political instability increases as housing inequality drives resentment. Cities become playgrounds for wealthy while workers commute hours from affordable periphery.

This outcome is increasingly likely without aggressive intervention. Market forces alone will not solve this—they created it.

Final Thoughts

The housing crisis is not inevitable natural disaster. It’s the result of specific policy choices, market structures, and technological developments. It can be corrected through different choices—but only if we’re willing to challenge incumbent interests, embrace density, revolutionize construction, and treat housing as human necessity rather than pure commodity.

AI and robotics that currently advantage institutional investors can instead revolutionize construction and planning. Zoning that currently restricts supply can be reformed. Public sector that abandoned social housing can rebuild it.

The question isn’t whether solutions exist. It’s whether we have political will to implement them against fierce opposition from existing owners who benefit from scarcity.

By 2040, some cities will have corrected course. Others will remain unaffordable playgrounds for the wealthy. The difference will be determined by choices made in the next five years.

The crisis is here. The solutions exist. What’s missing is the courage to implement them.

https://www.oecd.org/housing/affordable-housing-database/