Housing is increasingly an issue of public policy concern, as the US faces an affordable housing crisis. For decades, rents have been growing faster than incomes, and nearly 200 US cities had a median home value of at least $1 million as of June 2018. After a few years of decline, the number of people experiencing homelessness has grown again over the past couple of years. Theoretical models and the empirical literature on the housing market suggest that, over the long run, house prices depend positively on disposable income and demographic needs, and negatively on user costs and the housing stock. This last factor in particular has been thoroughly discussed in the policy debate.

Many experts have argued that, at its core, the US housing crisis is a supply issue. Between 2014 and 2018 (the period covered in our study), 5.1 million new households are estimated to have formed in the US, while net new housing supply was up only 4.1 million.14 This implies the ratio of housing units-to-households declined between 2014 and 2018. In the remainder of this chapter, we present snapshots of the affordability issue for renters and homeowners in turn. We then introduce the short-term rental market, the growth of which has created debate among local governments, housing activists, and residents about its impact on the availability of affordable long-term housing.