Broken By Design Part 7: The Housing Trap: How Zoning Laws and Investment Firms Stole the American Dream

This is Part 7 in our series on systems rigged against regular people. Part 1: Rankings | Part 2: Language | Part 3: Follow the Money | Part 4-6: Healthcare Series

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The Numbers Tell The Story

1980s: Median first-time homebuyer age: 29 2024: Median first-time homebuyer age: 38-40 (depending on survey)

1985: Home cost 3.5x annual income 2024: Home costs 7.6x annual income

Since 1960: Median home price increased 121% (inflation-adjusted) Since 1960: Median household income increased 29% (inflation-adjusted)

Translation: Homes have gotten 4.2x more expensive relative to wages.

And that’s just the average. In many cities, it’s far worse:

• Los Angeles: Home costs 12.5x annual income
• San Jose: 10.5x annual income
• New York: 9.8x annual income

For context: Financial advisors recommend housing cost no more than 2.6x annual income.

This isn’t a housing market. This is systematic exclusion.

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How We Got Here: The Perfect Storm

Three forces combined to make homeownership impossible for most young Americans:

1. Zoning laws that prevent housing construction (artificial scarcity)
2. Investment firms buying homes as assets (treating housing as stocks)
3. Tax policy favoring existing homeowners (pulling ladder up behind them)

Let’s trace each one.

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Problem #1: Zoning Laws Create Artificial Scarcity

The Single-Family Zoning Trap

The stat that explains everything:

75% of residential land in American cities is zoned for single-family homes ONLY.

No duplexes. No townhomes. No small apartment buildings. Nothing but detached single-family houses on that 75% of land.

What this means:

• Can’t build enough housing to meet demand
• Artificially limited supply
• Prices skyrocket
• Young people can’t afford homes

Examples:

• San Jose: 94% of residential land is single-family only
• Charlotte: 84% of residential land is single-family only
• Most major cities: 75-85% single-family only

And it gets worse: Many cities also require:

• Minimum lot sizes (often 1-2 acres)
• Setback requirements (house must be X feet from street)
• Height restrictions
• Parking minimums
• Prohibitions on accessory dwelling units (can’t build granny flat)

Result: Even the 75% of land zoned for housing can only accommodate very low-density, very expensive homes.

The History: How This Happened

1910s-1920s: Cities begin enacting single-family zoning

• Officially: To separate residential from industrial areas
• Actually: To segregate by race and class

Post-WWII: Suburbs expand with strict single-family zoning

• GI Bill subsidizes homeownership (great!)
• But only in segregated suburbs with exclusionary zoning (not great!)

Result: Three generations of Americans grew up thinking single-family suburban sprawl is “normal”

It’s not normal. Nowhere else on Earth zones this way.

The Impact: Housing Shortage

US housing shortage: 3.8-7 million homes (estimates vary)

Why? Because while population nearly doubled since 1960, housing construction dropped:

• 1960s: Building ~1.5 million homes/year
• 2010s-2020s: Building ~1.1 million homes/year

We’re building FEWER homes despite having TWICE the population.

And 75% of residential land is off-limits to anything but single-family homes.

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Problem #2: Investment Firms Treat Housing As Financial Assets

The Numbers

Institutional investors (firms owning 1,000+ homes):

• Own 0.5-0.67% of all US single-family homes
• That’s 574,000-600,000 homes

Sounds small, right?

But here’s the trick: They concentrate in specific markets:

• In some Sun Belt cities: 25-30% of homes sold go to investors
• In Atlanta, Phoenix, Las Vegas: 30-40% of recent sales

And they pay cash, outbidding families every time.

How It Works

The firms:

• Blackstone (via Tricon, Invitation Homes): ~274,000 homes
• American Homes 4 Rent: ~59,000 homes
• Progress Residential: Tens of thousands
• FirstKey Homes: Tens of thousands

Their business model:

1. Buy homes with cash (can’t lose bidding war)
2. Rent them out
3. Package the rental income into securities (like mortgage-backed securities)
4. Sell to investors
5. Use proceeds to buy more homes
6. Repeat

It’s 2008 all over again, but with rental income instead of mortgages.

The Impact On Regular People

Atlanta study (2007-2016):

• Institutional investors cost potential homeowners $4 billion in lost equity
• Impact concentrated in Black neighborhoods

Why investors win:

• Pay all cash (close in days)
• No inspection contingency
• No financing risk
• Can overbid and still profit from rent

Why families lose:

• Need mortgage (takes 30-45 days)
• Need inspection (might find problems)
• Need appraisal (bank requirement)
• Can’t compete with cash offers

Example:

• Family offers $400,000 with financing
• Investor offers $410,000 cash, no contingencies, close in 7 days
• Investor wins every time

“But It’s Only 0.5% of Homes!”

That’s the national average. The problem is concentration:

In target markets (Sun Belt, affordable cities):

• Investors buy 25-40% of available homes
• Removes starter homes from market
• First-time buyers can’t compete
• Forced to keep renting
• From the same investment firms that outbid them

It’s a perfect trap:

1. Investment firm outbids you for a home
2. You’re forced to keep renting
3. You rent from… the investment firm that outbid you
4. Your rent payments fund them buying more homes
5. Which means fewer homes available to buy
6. Which means you keep renting

See the problem?

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Problem #3: Tax Policy Favors Existing Homeowners

The Mortgage Interest Deduction

How it works:

• You can deduct mortgage interest from your taxes
• Up to interest on $750,000 loan

Who benefits:

• Homeowners with mortgages
• Especially wealthy homeowners with expensive homes
• Gets MORE valuable the more expensive your home is

Who doesn’t benefit:

• Renters (can’t deduct rent)
• First-time buyers (don’t have homes yet)
• People who can’t afford to buy

The numbers:

• Costs federal government ~$50 billion/year in lost revenue
• 75% of benefit goes to households making $100,000+
• Top 20% of earners get 60% of the benefit

Translation: We subsidize wealthy homeowners, not people trying to buy their first home.

Property Tax Structure

How it works in most states:

• Property taxes based on assessed value
• Assessed value increases as home prices rise
• BUT: Many states cap increases for existing owners

Example (California Prop 13):

• Own home since 1980? Assessed value barely increased
• Buy same house today? Assessed at current market value
• Pay 10x more in property taxes than neighbor for identical house

Who benefits: Long-time homeowners (mostly older, mostly white) Who pays: New buyers (mostly younger, more diverse)

Capital Gains Exclusion

How it works:

• Sell your primary residence
• First $250,000 gain ($500,000 married) is tax-free
• Can do this every 2 years

Who benefits: Homeowners who see appreciation Who doesn’t: Renters who don’t build equity

The problem:

• Incentivizes treating housing as investment, not shelter
• Encourages trading up (increases demand for expensive homes)
• Does nothing for first-time buyers

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Who Benefits From This System?

Let’s be specific:

Existing Homeowners (Especially Older Ones)

Benefits:

• Property values skyrocket (wealth increases)
• Can block new housing (“protect property values”)
• Pay lower property taxes than new buyers
• Get mortgage interest deduction
• Can sell tax-free and trade up

The data:

• Median repeat buyer age: 61 years old
• Median seller age: 63 years old
• Homeowners 55+ have average $300,000 in equity
• Homeowners under 35 have average $20,000-30,000 in equity

Translation: Older homeowners win big. Young people locked out.

Investment Firms

Benefits:

• Buy homes as financial assets
• Package rental income into securities
• Profit from artificial scarcity
• Don’t care about “community” or “neighborhoods”
• Just want return on investment

The firms making billions:

• Blackstone: $320 billion real estate portfolio
• Invitation Homes, American Homes 4 Rent, Progress Residential, FirstKey
• By 2030: Could control 40% of single-family rentals (MetLife projection)

NIMBYs (Not In My Backyard)

Who they are: Existing homeowners who block new housing

How they do it:

• Attend zoning meetings
• Sue to block new developments
• Claim new housing will:
  • “Change neighborhood character”
  • “Increase traffic”
  • “Lower property values”
  • “Strain schools/services”

What they actually mean:

• “I don’t want density”
• “I don’t want renters”
• “I don’t want people different from me”
• “I got mine, pull the ladder up”

The result:

• Every new housing project faces years of delays
• Environmental reviews, traffic studies, parking analyses
• Appeals, lawsuits, neighborhood opposition
• Many projects canceled
• Housing doesn’t get built

Example: Montana and Austin

• Both passed zoning reforms to allow more density
• Judges blocked them after homeowner lawsuits
• Housing crisis continues

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The Generational Wealth Transfer

Here’s what’s really happening:

Baby Boomers (born 1946-1964):

• Bought homes when median age of first-time buyer was 29
• When homes cost 3.5x annual income
• With mortgage interest rates subsidized by government
• With GI Bill benefits (for many)
• Have watched property values increase 400-1000% over 40 years
• Now sitting on $300,000+ in equity on average
• Can sell tax-free and downsize/move

Millennials (born 1981-1996) and Gen Z (born 1997-2012):

• Can’t buy homes until age 38-40
• Homes now cost 7.6x annual income
• With student loan debt averaging $37,000
• With stagnant wages relative to costs
• Competing against investment firms paying cash
• Locked out of building any equity
• Forced to rent, making landlords wealthy

The transfer:

• Boomers extract equity (sell high or take out home equity loans)
• Young people pay rent (builds no equity)
• Rent goes to landlords (often investment firms)
• Investment firms buy more homes
• Young people can’t compete
• Cycle continues

Homeownership rate by age:

• Age 65+: 79.3% homeownership
• Age 35-44: 62.2% homeownership
• Age under 35: 39.3% homeownership

This is the American Dream dying in real-time.

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Why This Matters Beyond Housing

Economic Mobility Dies

Historically: Homeownership was primary way middle-class families built wealth

• Buy home at 30
• Pay mortgage for 30 years
• Own home free and clear at 60
• Have asset worth hundreds of thousands
• Pass to children or use for retirement

Now: Can’t buy until 40, if at all

• By 40, you’ve paid $200,000-400,000 in rent (built zero equity)
• If you finally buy at 40, you pay mortgage until 70
• May not finish paying before retirement
• Less time to build equity
• Less wealth to pass to children

Result: Generational wealth gap widens

Geographic Mobility Dies

Can’t afford housing in job centers:

• Tech jobs in SF/Seattle/Boston: Can’t afford housing
• Finance jobs in NYC: Can’t afford housing
• Healthcare jobs in expensive cities: Can’t afford housing

Choice:

• Take job and spend 50%+ of income on rent
• Or live far away and commute 2+ hours
• Or don’t take the job

Result: Labor market efficiency dies. Can’t move for better opportunities.

Family Formation Delayed

Can’t afford housing → delay having kids:

• Average age of first-time homebuyer: 38-40
• Many wait to buy before having kids
• By 40, fertility declining
• Fewer kids, smaller families, population decline

Or: Have kids while renting

• Less space
• Less stability (landlord can sell, raise rent)
• Move kids between schools
• Can’t put down roots

Entrepreneurship Suppressed

Can’t start business if trapped paying rent:

• Need stable housing to take business risks
• Can’t quit job if need employer healthcare (Part 5!)
• Can’t quit job if need income for rent
• Can’t get small business loan without equity/collateral

Result: Fewer new businesses, less innovation, slower economic growth

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What Other Countries Do (That Works)

Vienna, Austria: Social Housing

The model:

• 60% of Vienna residents live in social housing
• Government builds and owns housing
• Rents at cost (no profit)
• High quality, well-maintained
• Mixed income (not “projects”)

Results:

• Median rent: 20-25% of income
• Stable housing for working/middle class
• Homeownership not required for security
• Housing crisis: doesn’t exist

Tokyo, Japan: Zoning Freedom

The model:

• National zoning laws, not local
• Can build almost anywhere
• Minimal single-family exclusive zones
• “Missing middle” housing everywhere
• Quick approval process

Results:

• Tokyo has 13 million people
• Housing stays affordable despite density
• Can build supply to match demand
• Young people can afford to live there

Singapore: Public Housing + Land Value Tax

The model:

• Government owns all land (99-year leases)
• Builds public housing for 80% of population
• High quality, well-located
• Option to buy with affordable financing
• Captures land value increases for public benefit

Results:

• 90%+ homeownership rate
• Affordable for working/middle class
• No speculation (can’t flip easily)
• Housing crisis: doesn’t exist

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Solutions That Would Actually Fix This

Solution #1: End Single-Family Zoning

What it means:

• Legalize duplexes, triplexes, fourplexes everywhere
• Allow “missing middle” housing
• Reduce minimum lot sizes
• Eliminate parking minimums
• Allow accessory dwelling units (granny flats)

Who’s doing it:

• Minneapolis: Ended single-family zoning in 2019
  • Result: Rents rose just 1% (vs. 14% in rest of Minnesota)
• Oregon: Statewide end to single-family zoning
• California: SB 9 allows duplexes statewide
• Maine, Montana, Washington: Similar reforms

Impact:

• Increases housing supply 15-30%
• Rents stabilize
• More affordable options
• “Missing middle” fills in

Opposition:

• Existing homeowners (“property values!”)
• NIMBYs (“character of neighborhood!”)
• Some lawsuits (Montana, Austin blocked by judges)

Solution #2: Ban Or Heavily Tax Corporate Ownership of Single-Family Homes

What it means:

• Ban corporations from owning single-family homes
• Or: Tax corporate ownership at punitive rates
• Or: Require owner-occupancy for tax benefits
• Or: Limit corporate ownership to X homes per metro

Models:

• Denmark: Can’t buy home unless you live there
• Berlin: Banned corporate purchases of apartments
• Canada: Considering 2-year ban on foreign/corporate buyers

Impact:

• Removes cash buyers competing with families
• Frees up starter homes
• Forces investment firms to sell
• Returns housing to being shelter, not asset class

Opposition:

• Investment firms (obviously)
• “But free market!” (housing market isn’t free when rigged by cash and zoning)

Solution #3: Tax Policy Reforms

A. End Mortgage Interest Deduction

• Or: Convert to first-time buyer credit
• Or: Cap at median home price
• Save $50 billion/year
• Stop subsidizing wealthy homeowners

B. Reform Property Tax

• Eliminate assessment caps that favor long-time owners
• Or: Land Value Tax (tax land, not improvements)
• Incentivizes density, penalizes speculation
• Stops older owners from paying 1/10th what new buyers pay

C. Reform Capital Gains Exclusion

• Keep $250k/$500k exclusion for primary residence
• But: Only once in lifetime (not every 2 years)
• Reduces treating housing as investment

D. First-Time Buyer Programs

• Down payment assistance
• Below-market interest rates for first purchase
• Tax credits for first-time buyers
• Make it easier to compete with cash investors

Solution #4: Build Social/Public Housing

Not “the projects”:

• Mixed-income
• High quality
• Well-maintained
• Well-located

Models that work:

• Vienna: 60% social housing, high quality
• Singapore: 80% public housing, 90% homeownership
• Finland: Ended homelessness with housing-first approach

Benefits:

• Provides affordable option
• Stabilizes rental market
• Gives people alternative to speculation-driven private market

Solution #5: Streamline Approval Process

Current process:

• Submit development proposal
• Environmental review
• Traffic study
• Neighborhood input (NIMBYs show up)
• Zoning board approval
• Appeals
• Lawsuits
• Takes 3-7 years, many projects canceled

Reform:

• Ministerial approval (staff approval, no hearing) for projects that meet code
• Limit appeals
• Shorten timelines
• CEQA/NEPA reform (environmental reviews used to block housing)

Who’s doing it:

• California: Streamlined approval for some housing
• By-right development (if it meets code, must approve)

Impact:

• Cuts approval time from years to months
• Reduces cost
• More housing gets built

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The Bottom Line

The American housing crisis isn’t an accident. It’s the result of specific policy choices that benefit:

• Existing homeowners (especially older/wealthy ones)
• Investment firms treating housing as assets
• NIMBYs blocking new construction

At the expense of:

• Young people trying to buy first homes
• Families needing affordable housing
• Economic mobility
• Geographic mobility
• Family formation

The system is rigged to extract wealth from renters and transfer it to homeowners and investment firms.

And it’s completely fixable.

Every solution listed above works in other places. We know how to build enough housing. We know how to keep it affordable. We know how to prevent speculation.

We’re just choosing not to.

Because the people who benefit from the current system (homeowners who vote, investment firms who lobby) have more power than the people hurt by it (young people who rent, families locked out).

But demographics are destiny.

Eventually there will be more renters than homeowners. More young people than old. More people hurt by this system than benefiting from it.

The question is: How much longer do we wait?

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Next Time

We’ve now covered:

• Healthcare (rigged extraction)
• Housing (artificial scarcity)

Next: Education Debt – The $1.77 Trillion Trap

How student loans became inescapable debt that funds a financial industry, traps graduates for decades, and exists nowhere else in the developed world.

Part 8: The Student Debt Trap

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If you’re under 40 and can’t afford to buy a home, this showed you why. If you’re a homeowner who opposes new housing, this showed you who you’re hurting.

Share this if you think young people deserve the same opportunities boomers had.

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Sources

• First-time buyer age: National Association of Realtors 2024-2025 Profile of Home Buyers and Sellers
• Home price to income ratios: Federal Reserve (FRED), Visual Capitalist analysis, Clever Real Estate studies
• Zoning data: CNN analysis, Bipartisan Policy Center, Urban Institute research
• Institutional investor data: Urban Institute, John Burns Real Estate Consulting, Texas 2036 analysis
• International housing models: Research on Vienna social housing, Tokyo zoning, Singapore HDB system
• Homeownership rates by age: US Census Bureau, American Community Survey
• Zoning reform impacts: Minneapolis case study (Upjohn Institute), Oregon implementation data