Housing Affordability and Housing Demand

A new Federal Reserve Bank of San Francisco study, published in February 2026, challenges one of the most common explanations for the housing affordability crisis. The research pushes back against a long standing assumption: that housing supply and demand imbalances caused by zoning restrictions are the main reason homes have become so expensive.

Instead, the study points to income growth and population growth as the real drivers of housing demand across different metro areas. This raises an important question for developers, lenders, and housing authorities. Is the housing affordability crisis really a supply problem, or is housing demand the bigger factor?

In this article, we break down what the research actually found, what the housing supply and demand data shows nationally, and what it means for anyone working in affordable housing development.

Housing Supply and Demand: The Basics

Every local housing market is shaped by two forces: how much housing people want, and how much housing exists. Understanding both is the starting point for understanding affordability.

What Is Housing Demand?

Housing demand refers to how many people want or need housing in a given area, and how much they’re willing or able to pay for it. It’s shaped by factors like income growth, population growth, job availability, and household formation. This is sometimes described as demand of housing, demand for housing, or the supply demand housing market, though all three refer to the same underlying dynamic.

What Is Housing Supply?

Housing supply is the number of available homes, whether for sale or rent, in a given market. It’s influenced by construction rates, zoning and land-use regulation, permitting timelines, and material and labor costs.

When housing supply and demand fall out of balance, prices move. Too much demand chasing too little supply pushes prices up. When supply keeps pace with demand, prices tend to stay more stable. This relationship is why the supply and demand housing market is central to affordability policy debates today.

The Housing Affordability Crisis, by the Numbers

The national median home price has crossed $400,000, and the typical household now needs roughly $120,000 in annual income to afford it, more than double what was required in 2020.

Home prices and mortgage costs:

• According to Harvard’s Joint Center for Housing Studies, median new and existing home prices have both climbed past $400,000 nationally as of 2026.
• The price-to-income ratio now sits near 5x, compared to a historical average of 3x. A market is generally considered affordable when home prices sit at around three times median household income.
• Monthly mortgage payments on a median-priced home rose from about $1,700 in early 2020 to over $3,100 by late 2025, according to JCHS, as interest rates have held above 6%.

Rent and household burden:

• The Urban Institute’s American Affordability Tracker found that rents rose 54% and home prices 81% nationally since 2017, while earnings grew just 38% over the same period.
• The National Low Income Housing Coalition’s 2026 Gap report found that 74% of extremely low-income renters are severely cost-burdened, spending more than half their income on housing.
• There’s a national shortage of 7.2 million affordable and available rental homes for extremely low-income renters.

Taken together, these figures point to a housing affordability index under real pressure on both the ownership and rental sides of the market.

What’s Driving Housing Demand: Income Growth and Population Growth

Two factors drive most of the variation in housing demand across U.S. metro areas: income growth and population growth. Federal Reserve Bank of San Francisco economists Schuyler Louie, John Mondragon, Rami Najjar, and Johannes Wieland found that these two forces behave very differently, and comparing real metro areas shows why the distinction matters.

Take San Francisco. Strong income growth among high earners has pushed home prices up sharply, but housing supply hasn’t grown nearly as fast. Now compare that to Houston, where population growth has been strong but income growth has stayed closer to average. In Houston, that demand shows up differently, with both housing supply and population expanding together.

This pattern held across 321 metro areas studied by the researchers between 2000 and 2020. Income growth is strongly tied to house price increases but has almost no connection to how much new housing supply gets added. Population growth, on the other hand, is the strongest predictor of new housing supply.

Where the demand for housing comes from matters just as much as how strong it is.

Is There Really a Housing Shortage? The Supply-Side Debate

Not according to the newest Federal Reserve research, at least not as the sole explanation. For years, the leading explanation for the housing affordability crisis has been simple: there isn’t enough housing supply. Restrictive zoning and land-use regulation, the argument goes, have made it too slow and too expensive to build, driving prices higher across the country.

This view has strong backing. Economists Edward Glaeser and Joseph Gyourko have long argued that supply constraints are the primary driver of unaffordability, and the 2024 Economic Report of the President devoted significant attention to loosening zoning rules as a fix.

But the Federal Reserve Bank of San Francisco’s own findings push back on this. Their data suggests that supply constraints don’t fully explain the differences in home prices or housing supply and demand across metro areas. In fact, housing supply outpaced population growth in about 85% of the metro areas studied, even in expensive markets like Los Angeles and San Francisco.

So is the housing shortage a myth? Not exactly. It’s more accurate to say the supply and demand housing market reflects more than construction rates alone, and both sides of this debate are backed by real data.

What This Means for LIHTC Developers and Housing Authorities

For institutional stakeholders working with Low-Income Housing Tax Credit (LIHTC) projects, this debate has direct implications for how affordable housing deals get structured and where they get prioritized.

Underwriting and Deal Structuring

Rent growth assumptions may need to shift if income growth is driving demand for housing in a market. Unit count and absorption timelines matter more if population growth is the bigger factor. Either way, understanding local housing demand drivers should shape how deals get stress-tested before closing.

Entitlement Strategy

Markets where supply already outpaces population growth face different entitlement pressures than markets with genuine imbalances in the supply and demand housing market. Knowing the difference helps developers prioritize which markets are worth pursuing zoning approvals in first.

Housing Authorities and RAD Conversions

For housing authorities, demand-driven affordability challenges may call for a different mix of solutions than supply-driven ones, including voucher expansion, preservation strategies, or Rental Assistance Demonstration (RAD) conversions rather than new construction alone.

Frequently Asked Questions

Conclusion

New Federal Reserve research shows that the housing affordability crisis has no single cause. Demand for housing, shaped by income growth and population growth, plays a much bigger role than many assumed, while long standing arguments about supply constraints still hold real weight in the conversation.

For developers, syndicators, and housing authorities, the real value isn’t picking a side in this debate. It’s understanding what’s actually driving housing supply and demand in a specific market before structuring a deal.

Shamrock Development works with institutional clients to translate research like this into practical underwriting, entitlement, and asset management strategy across the country.