The Regulatory Lock: How Government Policy Is Crushing Housing Affordability
A new report reveals how zoning laws and regulations have created a housing shortage, pricing out families and crushing the American Dream.
In San Francisco, a family needs $1,240,000 to buy a modest 1,100-square-foot home, according to a new April 2026 report from Highland Cabinetry. The report reveals that in America's most expensive cities, homebuyers pay more than $1,000 per square foot on average. For millions of working families, the American Dream of homeownership has become an unreachable fantasy.
The United States faces a systematic housing affordability crisis where 77 percent of households cannot afford the median price of a newly constructed single-family home, according to National Association of Home Builders data from January 2026. Restoring 2016-2019 affordability levels would require median home prices to fall 38 percent to $257,000, median income to rise 60 percent to $134,500, or mortgage rates to fall to 2.35 percent — none of which is remotely on the horizon according to Fannie Mae calculations.
The root cause is simple: America is short 4 to 6 million homes because over 33,000 state and local jurisdictions use zoning and land use authority to prevent new construction. Regulations account for 24 percent of the cost of a new single-family home, approximately $94,000, and 41 percent of multifamily project costs, NAHB Chairman Buddy Hughes testified to Congress. "For every thousand-dollar increase to the cost of a single-family home, an additional 116,000 households are priced out of the market," Hughes stated.
Households now need $15,400 more per year than in 2019 to maintain the same standard of living, with shelter costs rising 33.9 percent from 2019 to 2025 according to the Common Sense Institute. There is a shortage of 7.2 million affordable and available rental homes for 11 million extremely low-income households, creating what the National Low Income Housing Coalition calls "The Gap" in its March 2026 report.
The demographic consequences are severe. America's fertility rate has hit a record low of 1.6 babies per woman, and 51 percent of the total fertility rate decline between the 2000s and 2010s can be attributed to housing costs, according to AEI research fellows Arthur Gailes and Brad Wilcox. "Family formation has cratered in the last fifteen years in the United States," they wrote in a February 2026 analysis. "One big reason young people are hesitant to get married and have a family is that soaring housing costs have made having and raising children much more expensive."
Economists Chang-Tai Hsieh and Enrico Moretti estimated that high-productivity cities adopting stringent restrictions on new housing supply lowered aggregate U.S. growth by 36 percent between 1964 and 2009. Americans are losing wealth and opportunity because housing regulations prevent them from moving to areas with better jobs and higher wages.
Market-based solutions exist that could fix this crisis. The AEI Housing Center proposes selling just 0.1 percent of federal land near existing infrastructure in fast-growing Western metros, which could create space for roughly 3 million homes. Another AEI proposal would require localities to allow modest starter homes on smaller lots by right, creating 1 million new family homes annually until prices normalize. "The two most important words in housing affordability are 'smaller lots,'" wrote Arthur Gailes in an AEI op-ed published by the Washington Examiner.
Success stories demonstrate that deregulation works. In 2018, Minneapolis became the first U.S. city to eliminate single-family-only zoning under the Minneapolis 2040 Plan. Research published in 2025 by Helena Gu and David Munro found that home prices were 16% to 34% lower and rents were 17.5% to 34% lower relative to a synthetic counterfactual in the five years following implementation — though the researchers attributed these reductions to a softening of housing demand rather than to increased supply from deregulation. Austin added nearly 50,000 rental units in 2023-2024 alone after passing deregulatory measures. Auckland, New Zealand upzoned 75 percent of residential land in 2016, and rents were 28 percent lower than they would have been without upzoning.
On the political front, the 21st Century ROAD to Housing Act passed the Senate 89-10 on March 12, 2026, but critics call it a political ploy. "It's a political ploy to say they are doing something about housing," Norbert Michel of the Cato Institute told Finance Commerce in March 2026. The Trump administration's proposal to make 1.5 million acres of federal land available for residential development offers a more direct solution, according to housing economists at Norada Real Estate.
The American Dream of homeownership is being systematically destroyed not by market forces but by government policy. The April 2026 Highland Cabinetry report provides the data point, but the real story is how zoning laws, regulatory costs, and federal land hoarding have created a housing shortage that prices out working families. The only solution is to let Americans build homes — and the evidence shows that when governments remove regulatory barriers, housing supply increases and prices fall.