High Inflation and Housing Affordability in the United States

How declining purchasing power, rising construction costs, and higher mortgage rates reshaped access to homeownership
Research and analysis by Piero Lorenzo
October 2025
Between 2021 and 2023, the United States experienced one of its most severe housing-affordability shocks in decades. Consumer inflation reached 9.1 percent, mortgage rates rose from approximately 3 percent to more than 7 percent, and home prices increased much faster than household incomes.
This research examines how inflation affected housing affordability through four interconnected channels: declining real purchasing power, rising construction costs, higher mortgage rates, and increasing pressure on rental markets.
Using economic theory and data from the Bureau of Labor Statistics, Federal Reserve Economic Data, the Urban Institute, and other housing-market sources, the analysis also considers the broader consequences for homeownership, generational wealth, inequality, and public policy.

​Key Findings
  • Inflation reduced the real purchasing power of household income and savings.
  • Higher material, labor, and financing costs constrained the construction of new housing.
  • Mortgage rates more than doubled, sharply increasing monthly ownership costs.
  • Rising rents made it more difficult for households to save for a down payment.
  • Younger and lower-income households experienced the greatest barriers to homeownership.
  • Existing owners with fixed-rate mortgages were partially protected, widening the economic divide between current owners, renters, and prospective buyers.
  • Monetary tightening alone cannot resolve a housing shortage rooted partly in limited supply, zoning restrictions, and construction constraints.
The complete paper examines the economic theory, empirical evidence, historical parallels, distributional consequences, and policy implications connecting inflation with housing affordability in the United States.
​​Download the full paper (PDF)
High Inflation and Housing Affordability in the U.S. — by Piero Lorenzo (2,599 words, PDF)
Inflation erodes U.S. housing affordability by simultaneously reducing real incomes, raising construction and material costs, and increasing mortgage rates.
Using data from the Bureau of Labor Statistics, Federal Reserve Economic Data (FRED), and the Urban Institute, this research integrates theory (Quantity Theory of Money, Fisher Effect) with empirical analysis to show how the 2021–2023 inflation surge led to the most severe affordability crisis since the 1980s.
The paper concludes with policy recommendations to expand housing supply, support renters, and improve monetary communication to stabilize expectations.

Highlights
  • CPI peaked at 9.1% in June 2022 — the highest in 40 years
  • Mortgage rates doubled, from 3% to over 7%
  • Median home prices rose 40% in just two years
  • Younger generations delayed homeownership, widening inequality
  • Policy solutions: expand housing supply, support renters, reform zoning


    Author: Piero Lorenzo (October 2025)
    Grade: 114/110 
    Course: ECON 100W — Writing Workshop in Economics
    Instructor’s Note: Permission granted to publish for educational and professional use.
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