Why Population Growth Doesn’t Explain Today’s Housing Prices

The Narrative Problem

Public discussion regarding housing affordability has settled over the last few years into a narrow set of explanations that seem to connect only partially to outcomes.

Turn on the news and the messaging loops around similar claims:

Housing is unaffordable because there aren’t enough homes.
Population growth overwhelmed supply.
The pandemic halted construction.

That prices rose because the country physically ran out of housing. The problem is that this story does not match the timing, scale, or persistence of price increases observed since 2020. Lets work through those claims.

Did Population Growth Break Housing?

One claim deserves immediate skepticism: that population growth alone explains current prices.

U.S. population growth has been steady, not explosive. The Census Bureau estimates we grew by about 0.7% per year between 2020 to 2024 (between 2000 and 2020, the average is 0.8% per year), which is meaningful but not remotely the kind of ramp-up that explains a sudden national repricing of housing. There was no demographic shock between 2020 and 2024 sufficient to justify home prices rising roughly 40% nationally over a short window, as measured by the S&P CoreLogic Case-Shiller U.S. National Home Price Index, with some metropolitan areas experiencing substantially larger increases.

That tells us something structural changed.

The Pandemic Underbuilding Claim

If population growth did not spike to match the spike in housing, then the next claim is that not enough housing was built during the pandemic.

This phrasing remains common in media coverage, policy discussions, and housing research. It is often expressed as:

Years of underbuilding left the U.S. millions of homes short.
Construction slowed during COVID, creating today’s housing shortage.
Supply chain disruptions and labor shortages prevented enough homes from being built.

Housing construction did slow in early 2020, and the U.S. entered the pandemic with a well-documented post-2008 underbuilding gap; Freddie Mac estimated a U.S. housing supply deficit of about 3.8 million units as of Q4 2020 and later estimated the shortage at about 3.7 million units (Nov 2024 update).

At the same time, investor participation in home purchases remained structurally significant at the national level; the share did not need to rise sharply to change outcomes, only to persist while capital costs collapsed and for-sale inventory thinned. Redfin estimates that investors accounted for roughly 15% of U.S. home purchases in 2021, a period when construction was still recovering, and that investor share remained elevated through the pandemic years relative to the prior decade. In other words, millions of homes were and are continuing to be removed from supply, acquired as investment properties rather than owner-occupied housing.

A temporary slowdown in construction does not produce a nationwide ~40% price increase, unless demand conditions and ownership dynamics also change. Homes did not vanish during the pandemic. What changed was how aggressively existing homes were bid on, financed, and held.

To understand the divergence, capital conditions and ownership incentives have to be part of the analysis.

Framing the Question Correctly

In particular, we must hold three facts at the same time:

Mortgage rates fell to historic lows during 2020–2021 as a deliberate policy choice.
Residential housing prices accelerated rapidly during that same period.
The benefits of cheap capital did not accrue evenly across households, investors, and institutions.

What was the intent of low interest rates for residential housing? It bears scrutiny.

This is not an anti-business argument. Institutional and corporate buyers acted rationally within the rules that existed. They did not break the system. Responsibility lies with policymakers who allowed residential housing—zoned and culturally understood as shelter—to be treated as a scalable financial asset without updating ownership constraints, tax treatment, or market protections.

Low Interest Rates Were a Policy Choice

Mortgage rates during 2020–2021 reached the lowest levels in modern U.S. housing history; Freddie Mac’s Primary Mortgage Market Survey reported a record-low weekly average 2.65% for the 30-year fixed-rate mortgage in early January 2021. This was not an accident or a market anomaly; it was the result of deliberate monetary policy designed to stabilize the economy and financial system.

Cheap capital dramatically altered housing demand, but not symmetrically:

Households faced lower monthly payments, but still needed income, credit approval, and down payments.
Investors could deploy leverage at scale, often using cash, credit lines, or securitized financing structures.

The question is not whether low rates helped housing. The question is who they helped most.

Did Homeowners Benefit?

Existing homeowners benefited unevenly. Those who already owned property saw asset values rise sharply and refinancing opportunities improve. First-time buyers, by contrast, encountered higher prices that offset or exceeded the benefit of lower rates.

Cheap financing did not make homes cheaper. It made higher prices financeable.

Did Investors Benefit?

Yes—structurally.

Investor and institutional buyers could scale purchases precisely because capital was cheap and abundant. Single-family homes, particularly at the entry level, became yield-generating assets rather than transitional ownership opportunities.

This shift matters because it changes market function. Homes move from for-sale inventory into long-term rental stock. A house will be occupied, while also being unavailable to buyers indefinitely.

Investor Purchasing Changed the Market’s Function

And, even as mortgage rates are elevated, investing in homes continues. Nationally, Redfin estimates investors purchased about 17% of U.S. homes that sold in Q3 2025 (up slightly from 16% a year earlier).

Key consequences:

Investors target the same homes first-time buyers need.
Many purchases bypass interest-rate sensitivity (for example, Redfin reported 32.6% of U.S. home purchases were all-cash in 2024).
Homes transition from ownership pathways into permanent rental assets.

At the national level, this matters because investor share is large enough to shape prices in the same segments first-time buyers rely on.

Why Prices Stay High Even When Rates Rise

In a traditional model, higher rates reduce demand and push prices down. In today’s market households face higher monthly payments while investors and cash-buyers do not face the same constraint.

When demand remains active, markets do not clear downward. Transactions slow, inventory tightens, and affordability worsens without a collapse. U.S. existing-home sales fell to 4.09 million in 2023 illustrating how activity can dry up even when prices do not reset quickly.

Add the lock-in effect—where existing owners hesitate to sell because their low-rate mortgage is hard to replace—and markets freeze rather than reset. Artificial involvement by Policy makers encouraged the prevailing market rates.

The Policy Mismatch

Public policy continues to emphasize:

Rezoning
New construction
Density increases

While largely ignoring:

Ownership concentration
Investor demand elasticity
First-buyer access protections
Tax structures that reward higher valuations

This mismatch is not accidental.

Local and state governments benefit directly from rising assessments, higher transaction values, and increased development fees. Property taxes alone raised about $630 billion for state and local governments in 2021, equal to about 15% of their general revenue, according to the Tax Policy Center. No matter your party affiliation, fiscal systems are aligned with price stability or appreciation.

The Structural Outcome

This did not happen by accident.

Housing did not become unaffordable because the country suddenly had more people than appropriate shelters. It became unaffordable because the rules allowed homes to be treated as balance-sheet assets first and places to live second.

Prices did not rise because buyers were reckless. They rose because cheap capital met permissive ownership rules. In that environment, prices did exactly what the system rewarded them to do.

The public story says affordability failed because we didn’t build fast enough. The quieter reality is that prices stayed high because too many parties benefit when they do.

When governments rely on rising assessments for revenue, when investors are rewarded for holding rather than selling, when lucky households were able to refinance during the surge in 2020–2021, and when households are told to wait patiently for a correction that policy is actively preventing, the outcome is not a mystery.

And the system has not been updated to deal with that fact. No ideology. This is by design.