The Housing Affordability Crisis: From Gold Standard to Gold-Plated Real Estate

Housing has transformed from a basic necessity into one of the most significant financial burdens for the average person. This post examines how housing affordability has deteriorated over time, with a particular focus on what happened after 1971 when the United States abandoned the gold standard—an event that fundamentally changed our monetary system and had far-reaching consequences for asset prices, particularly housing.

The Housing Price-to-Income Ratio: A Worsening Trend

The most direct measure of housing affordability is the ratio of median home prices to median household income. This ratio tells us how many years of total income it would take to pay for a home.

The chart clearly shows:

1. Pre-1971: Housing was relatively affordable, with the price-to-income ratio hovering around 2.2-2.6×
2. Post-1971: After the abandonment of the gold standard, the ratio began a gradual upward trend
3. 21st Century: Since 2000, housing has become dramatically less affordable, reaching 7.2× annual income by 2025

A ratio of 3.0 or less is traditionally considered affordable. Today’s ratio of 7.2 means the average family would need to dedicate more than 7 years of their entire income to purchase a home.

The Gold Standard Abandonment: A Pivotal Moment

In 1971, President Nixon ended the convertibility of the US dollar to gold, effectively abandoning the gold standard that had restrained monetary expansion. This decision had profound consequences for the global financial system.

Notice the dramatic acceleration in money supply growth after 1971. With the constraints of gold backing removed, the money supply has increased by over 30 times since the gold standard ended. This expansion has had profound effects on asset prices, particularly real estate.

Housing Costs as Percentage of Income

One of the most telling metrics is how much of their income people spend on housing. This has risen dramatically in the post-gold standard era:

In the 1960s, Americans spent on average just 17.2% of their income on housing. Today, that figure has more than doubled to 37.5%, meaning over a third of income is consumed by housing costs alone.

Regional Housing Affordability Crisis

The problem is not uniform across all regions. Some areas have experienced much more severe affordability issues than others:

Coastal areas have been hit particularly hard, with California reaching a staggering 12.6× price-to-income ratio, making homeownership virtually impossible for many residents without family wealth or extraordinary incomes.

Interest Rates and Housing Affordability

While house prices have risen dramatically, lower interest rates in recent decades have somewhat masked the affordability crisis by reducing monthly payments—though this effect is often temporary:

Despite historically low interest rates for much of the 2010s, housing affordability has been declining since 2012. The recent rise in interest rates has dramatically worsened the situation, creating a “double whammy” of high prices and high rates.

Wealth Transfer Through Housing: Who Benefits?

The housing affordability crisis represents one of the largest intergenerational wealth transfers in history.

Those who owned real estate before the massive price escalations have seen tremendous wealth creation, while younger generations face a mounting challenge:

While homeownership rates for older Americans have remained high or even increased, the rate for those under 35 has declined significantly, especially since 2000, creating a growing wealth gap between generations.

The Decoupling from Productivity

Perhaps most concerning is how housing prices have decoupled from productivity and wages—a trend that began decisively after the abandonment of the gold standard:

Since 1971:

• Housing prices have increased by 862%
• Wages have increased by 423%
• Productivity has increased by 414%

This widening gap between housing costs and income/productivity represents a fundamental shift in our economic system. Prior to 1971, housing prices largely tracked with wages and productivity.

Key Drivers of the Housing Crisis

The abandonment of the gold standard was not the only factor in the housing affordability crisis, but it created the monetary conditions that made it possible. Other key factors include:

1. Monetary expansion: Easy money policies and quantitative easing disproportionately benefit asset prices
2. Restrictive zoning: NIMBY policies limiting housing supply in desirable areas
3. Financialization of housing: Treating homes as investment assets rather than shelter
4. Institutional investors: Large firms purchasing single-family homes as rental properties
5. Global capital flows: International investment in “safe haven” real estate markets

Conclusion: Hard Money, Hard Assets

The shift away from sound money (gold standard) to fiat currency has fundamentally changed the economics of housing. In a fiat currency system, hard assets like real estate become monetary premium assets—stores of value that protect against currency debasement.

Unfortunately, this monetary reality has transformed one of life’s basic necessities—shelter—into an increasingly unaffordable investment asset.

The result is a society where an ever-larger portion of income is dedicated to housing costs, creating economic strain and widening wealth gaps.

As we move forward, addressing the housing affordability crisis will require not just supply-side solutions like increased construction, but also a deeper rethinking of our monetary system and its impact on asset prices and wealth distribution.