Understanding the Housing Affordability Crisis: A Comparison of 1985 and Today

Only 12% of consumers currently think it’s a good time to buy a home, and many millennials feel the American dream slipping away. How has housing affordability shifted so dramatically since the mid-1980s?

“The typical American family no longer earns enough to qualify for the average single-family home.”

The Rising Cost of Homeownership

In 2023, the median price for a single-family home in booming markets like Austin, Texas, sits near $435,000. To purchase one, buyers typically need a 20% down payment—about $87,000—plus closing costs that range from 2% to 5% of the loan amount, or an extra $8,700 to $21,750. Annual homeowners insurance now averages $2,400, up 20% since 2021, and property taxes nationally average $4,100 per year, a 24% jump from 2016. Routine home maintenance costs average $6,600 annually. Combined with a 30-year fixed mortgage at 6.5%—which drives principal and interest payments above $3,000 per month—the true cost of ownership can exceed $10,000 in monthly budget commitments.

A decade ago, the same Austin home sold for closer to $285,000, demonstrating how rapidly prices have surged. Meanwhile, wage growth has lagged behind these increases, placing additional strain on families who must juggle rising costs for utilities, transportation, and childcare alongside their mortgage.

Cost of Ownership vs. Income Levels

Affordability depends on the ratio of home costs to household income. Today’s median U.S. family income is roughly $77,000, compared with $27,740 in 1985 [verify]. Since 1985, median home prices have climbed 470%. In the 1980s, buyers spent about 2.7 times their income on a typical home; today, that figure nears 4.7 times income. Mortgage payments consume approximately 28% of family earnings in both eras, but upfront costs have ballooned.

In 1985, saving 10% of one's income took roughly 5.5 years to accumulate a down payment. Now, the same savings rate demands over nine years. The National Association of Realtors reports the income required to afford a median single-family home more than doubled from $49,000 in 2021 to $110,000 this year. For younger buyers earning below the national median, these thresholds put homeownership increasingly out of reach.

Government Assistance: A Double-Edged Sword

First-time buyers today benefit from a broader array of federal and state programs than in the 1980s. Federal Housing Administration loans allow down payments as low as 3.5% for qualifying borrowers, and Fannie Mae offers up to 3% in down-payment grants. State and local initiatives—like California’s MyHome Assistance Program or Texas’s My First Texas Home—provide deferred-payment loans or tax credits for eligible buyers.

Despite these supports, lending standards have tightened since the 2008 financial crisis, raising credit score and debt-to-income requirements. Borrowers carrying student loan debt or those with irregular incomes often struggle to qualify. While assistance programs reduce upfront costs, they rarely keep pace with home price inflation, leaving many would-be homeowners with large mortgage balances and high monthly obligations.

To illustrate, in 2023 more than 500,000 first-time buyers tapped into FHA programs. Yet compared with the 1980s, when down payments frequently reached 20% and conventional underwriting was more permissive, today’s assistance options do little to stop rising price-to-income ratios.

Furthermore, remnants of the mortgage interest tax deduction and Veteran Affairs loan programs provide occasional relief, but these benefits skew towards higher-income homeowners and do not sufficiently target first-time or low-income purchasers. As a result, existing incentives often fail to close the widening affordability gap for younger and minority buyers.

Supply Constraints in Today’s Market

In 1985, roughly 105 million people lived in the U.S.; by 2023, the figure surpassed 330 million. Yet new housing has not kept pace. Builders completed 1.7 million single-family homes in 1985 but only 1.4 million in 2023. Manufactured-home additions rose dramatically—from 28,000 to 990,000—yet total inventory continues to shrink.

Between 2012 and 2023, some 15.6 million new households formed while only 9 million housing starts broke ground, yielding a 6.5 million-unit gap. Even after adding multi-family units and apartments, analysts estimate a remaining shortfall of 2.3 million units.

Several factors hamper supply. Local zoning laws often restrict multi-unit development, driving up land and permitting costs. The construction industry faces skilled labor shortages and lingering pandemic-era material price inflation. Community opposition to density—commonly known as NIMBYism—slows approvals and exacerbates equity concerns. Without policy changes that streamline permits or incentivize affordable projects, supply constraints will keep housing scarce and expensive.

Changing Mortgage Options: The Shift from Adjustable Rates

In 1985, adjustable-rate mortgages (ARMs) were extremely popular, accounting for roughly half of all conventional single-family loans. With 12% fixed-rate loans commanding higher interest initially, many borrowers chose ARMs to benefit from anticipated rate cuts. After the introductory period, homeowners refinanced into long-term products, accepting closing costs as a trade-off.

Fast-forward to 2024, and ARMs account for just 5.6% of new mortgages. Fixed-rate loans offer competitive rates and payment certainty, reducing interest-rate risk for borrowers. The small spread between ARM and fixed rates no longer justifies the adjustable option.

Another tool from the 1980s—assumable mortgages—allowed buyers to take over a seller’s existing loan, often at lower rates. Today, underwriting rules and prolonged processing times mean assumables are impractical for most buyers. As lenders shift toward standardized fixed products, buyer flexibility has narrowed.

Conclusion: The Clear Winners and Losers

Clearly, the housing affordability crisis in 2024 is more severe than in 1985, especially younger generations and first-time buyers facing unprecedented financial hurdles.

• Advocate for zoning reform and targeted incentives to accelerate housing supply and stabilize prices.

Long-term solutions might include revisiting tax incentives, expanding transit-oriented affordable housing near employment centers, and investing in modular construction techniques to lower build costs. Collaboration across federal, state, and local governments—as well as private developers—will be crucial to reversing decades of supply shortages and skyrocketing prices.

What policy innovations or community-driven solutions could restore access to homeownership for today’s buyers?