Western housing crisis: Incomes can't keep up with home prices and rents

By 2026, the escalating housing crisis in Western nations had forced its way onto the agendas of some of the world's wealthiest governments.

In Britain, a landmark tenants' rights law took effect in England and Wales on May 1, ending "no-fault" evictions in one of the country's biggest overhauls of the private rental sector in decades.

Across the English Channel, the European Commission and European Parliament launched a fresh push on housing affordability, while in Washington, the U.S. Senate advanced a rare bipartisan bill to ease barriers to new construction and expand the supply of affordable housing.

Experts say the shortage of affordable housing is becoming a common problem across the Western world. From London to Toronto, Berlin to Sydney, as rents and home prices outpace incomes, young buyers are being shut out of homeownership, and governments are under growing pressure to decide whether housing should be treated as a basic need or a financial asset.

"In Canada and some other Western European countries, since neoliberalism started taking effect in the late '70s and early '80s, it has gradually eroded public spending on housing," Leilana Farha, global director of THE SHIFT, an international human rights organization focused on housing, told Al Jazeera. "If there was an affordability crisis before the 2008 global financial crisis, it was really for the lowest-income people. This is due to the erosion that neoliberalism caused, concentrated on social housing, while privatizing and eliminating existing social housing."

In February, Dutch Prime Minister Rob Jetten pledged to build 100,000 homes a year, with 30 new large-scale housing projects across the Netherlands. During his 2025 election campaign, he declared: "Every pig in this country has a roof over its head, but a student or a young person can't even find a cheap broom closet."

The lack of affordable housing is tied to the fact that basic housing costs have risen faster than people's incomes, forcing households to spend so much on rent, mortgages, utilities, and related expenses that they have less and less money left for food, healthcare, childcare, transportation, or savings.

According to the United Nations Human Settlements Programme (UN-Habitat), housing is generally considered unaffordable when costs exceed 30% of household income, while the OECD uses a stricter "housing cost burden" measure, including households spending more than 40% of disposable income on housing.

However, in many cities, that threshold no longer fully captures the range of housing costs—both for renting and owning. Families may pay significantly more than the 30% threshold, live in overcrowded homes, move farther from work and schools, delay homeownership, or rely on debt just to maintain shelter. Experts worry that unaffordable housing is not just a financial strain but also a driver of rising inequality.

According to the June 2025 State of the Nation's Housing report by the Harvard Joint Center for Housing Studies, not enough suitable homes are being built for families: "The boom in multifamily construction is ending. The slowdown in new construction, combined with high demand for rental homes, suggests the rental market is likely to tighten further in the near future."

For much of the 20th century, housing affordability in wealthy and Western countries was supported by a mix of social housing, rental construction, and lower-cost homeownership. Experts say this was because housing was seen more as a human need than an investment tool. "In Canada, in the '60s and '70s, there was a real understanding of the importance of a roof for survival, and there was an understanding that a range of housing opportunities were needed. There was social housing, rental housing being built, homeownership options, and new mortgage products," Farha said.

In the first half of the 20th century, governments in wealthy nations largely expanded access to affordable housing. As a result, housing was significantly cheaper in wealthy countries during the 20th century than it is now. According to data from investment bank Schroders, the average house price was four times the average annual income in the UK in 1957. But the housing affordability crisis began to deepen as many governments cut public and social housing investment in the late 20th century, letting the private market increasingly determine not only house prices but also access to neighborhoods, cities, and opportunities. By November 2022, the average house price was nine times the annual income.

In the United States over the past 50 years, home prices have also increasingly outpaced wages. The Harvard report shows the U.S. national price-to-income ratio reached 5.0 in 2024, compared with 4.1 in 2019 and an average of 3.2 in the 1990s. According to Farha, "neoliberal" policies in Britain and the U.S. have "hollowed out" public housing. This financial liberalization has turned housing from a social good into something increasingly shaped by markets and private capital.

The gradual privatization of housing in the late 20th century extended into the 21st century. According to the OECD's 2024 affordable housing overview, public investment in housing development across OECD countries was "cut by nearly 90% from 2009 to 2016." As policy shifted away from large-scale public housing construction toward vouchers, tax credits, and incentives for private developers, this increasingly opened the door for institutional investors to enter the housing market. Since the 2008 global financial crisis, massive capital flows have poured into residential real estate, turning rental housing into a major investment target across Western nations, Farha said.

According to UN-Habitat's 2025 report "Adequate Housing for All," more than 2.8 billion people face some form of housing deprivation, including 1.1 billion living in informal settlements and slums. In many economies of the Global South, the housing crisis is about access to basic shelter, infrastructure, tenure security, and displacement. In richer OECD countries, it is often about affordability, rising rents, financialization, homelessness, and the decline of public or social housing. Evidence suggests the housing crisis will not be solved by just building more homes. According to Farha, the starting point would be treating housing as a fundamental human right rather than an investment opportunity.

Even U.S. President Donald Trump seemed to agree. In a speech at the G7 summit in Davos in January, he said: "Homes are built for people, not for corporations, and the United States will not become a nation of renters." The same day, he signed an executive order named "Preventing Wall Street from Competing with Main Street Homebuyers," with several provisions. The order directs federal agencies and government-sponsored enterprises to stop, to the extent permitted by law, approving, insuring, guaranteeing, securitizing, facilitating, or selling single-family homes to large institutional investors when those homes could be purchased by individual owners or occupants.