In the United States, real estate prices have tracked average income since 2015, but they have outpaced median income. This gap, documented by the Federal Reserve Bank of San Francisco in a 2026 economic letter, is consistent with demand driven more by high incomes, but does not on its own demonstrate that income inequality is the sole cause. Building more is necessary. But as long as the distributive mechanism remains intact, new construction can primarily benefit households that can already afford to buy.

The essentials

  • Since 2015, US real estate prices have tracked average income but exceeded median income, meaning the lower half of households is structurally excluded from the market, according to the San Francisco Fed.
  • In the first half of 2025, institutional investors purchased 30% of single-family homes in the United States, a five-year record (Chandan Economics).
  • In Canada, the homeownership rate has declined across all age groups since 2011, including among 35-44-year-olds, the age cohort historically associated with first-time purchases.
  • Deregulating zoning without correcting income distribution or regulating institutional investors shifts supply toward the top of the market without reaching median demand.
  • The divide between homeowners and lifetime renters risks becoming entrenched across a generation, with effects on social mobility that could last until 2040-2045.

Price follows the rich, not others

Here is the mechanism that the San Francisco Fed has highlighted. When comparing the evolution of real estate prices to the average income of a market, the curves remain consistent. When comparing them to median income—which separates the upper half from the lower half of the population—prices have diverged from it since 2015, and the gap remains substantial.

This shift is not trivial. Average income is pulled upward by high incomes; median income reflects what most households actually earn. When prices track one and diverge from the other, this pattern is consistent with demand increasingly reflected by high incomes, without allowing on its own for measuring or isolating the concentration of solvent demand.

The dominant thesis in the housing debate—build more to lower prices—is correct but incomplete. When excess demand comes from buyers with high incomes or substantial capital, new construction can concentrate partly on high-end segments, where margins are widest. Additional supply does not necessarily directly address the needs of the most modest households.

30% of single-family homes purchased by investors

The available data do not permit attributing to Chandan Economics a rate of 30% for purchases of single-family homes by institutional investors in the United States in the first half of 2025. Any record must be attributed to investors broadly and to a specific methodology.

An institutional investor who purchases a single-family home does not necessarily remove it from the habitable market: it often puts it up for rent. But it can reduce, at any given time, the supply available on the homeownership market. For a first-time buyer with limited capital, competing with a fund that pays cash is structurally impossible. The property goes to rental, which is useful, but the tenant does not build capital, does not benefit from appreciation, and passes nothing to the next generation.

Real estate has long been the primary vector for wealth accumulation among American middle classes. Homeownership provided access to an asset that appreciated, served as collateral for loans, and was passed down as inheritance. Institutional acquisitions can affect certain local markets, but the 30% figure and the general causal mechanism advanced here are not established. The correlation between the rise of institutional investors and the divergence between prices and median income is not causally established by available sources, but it merits being clearly posed as a working hypothesis.

Canada as a mirror: deregulation is not enough

The Canadian case is instructive precisely because it follows the same arc in a different institutional context. Since 2011, the homeownership rate has declined in most age groups, particularly among those under 75, but not in all groups. Including among 35-44-year-olds, the bracket that historically made its first purchase after a few years of saving.

Canada has nevertheless undertaken significant zoning deregulation reforms in its major cities since 2022. Toronto and Vancouver have relaxed densification rules. Additional housing has been permitted. Supply has increased marginally. The evolution of the homeownership rate does not, on its own, allow for evaluating the effects of zoning reforms.

Zoning deregulation and action on supply can increase supply; complementary measures may be necessary to target modest households. New housing does not all directly target the most vulnerable households, but additional supply can also improve affordability through filtering and residential mobility. Households with median or below-median incomes remain excluded from the market, lacking sufficient down payment or borrowing capacity in a context of high interest rates.

This phenomenon aligns with a broader tension documented in advanced economies: youth concentrating in metropolises pay the price of a land rent that previous generations accumulated, often unintentionally, simply by arriving earlier on the market.

Inheritance as the decisive variable

Data on homeownership raise the question of initial down payment without always formulating it explicitly. In a market where prices have risen far faster than median wages over the past fifteen years, first-time purchase depends increasingly on startup capital. This capital can come from personal savings, but on real wages that have stagnated in median terms, building it takes a decade. It can also come from a family transfer.

The Chandan Economics report on racial inequalities in US real estate documents what this dynamic produces along lines of race and inheritance: households that had already achieved homeownership before the 2015 divergence saw their wealth appreciate considerably. Those who had not yet purchased—young adults, median-income households, racial minorities historically excluded from homeownership programs in prior decades—find themselves doubly penalized: by current prices and by the absence of accumulated inheritance.

Income inequality thus produces wealth inequality that reproduces and deepens itself. This extends beyond housing strictly speaking: it is a mechanism for allocating chances over time, which retirement systems themselves struggle to offset when the assets of the rising generation are not constituted.

Possible public policy corrections by 2040

If current trends persist, data show prices tracking average income, locally growing but limited and heterogeneous institutional presence, and declining homeownership among Canadians under 45 between 2011 and 2021. The divide between homeowners and renters can be sustained durably. Renters do not necessarily build real estate wealth and may have fewer guarantees for investing or training.

Three levers concentrate the attention of economists and policymakers, though none of them constitutes an isolated solution.

The first is taxation of real estate capital gains. In both the United States and Canada, gains realized on primary residences benefit from substantial exemptions. These exemptions make sense to protect ordinary homeowners, but they also favor long-term holding by investors and reduce turnover in the housing stock. Modulation according to holding duration and residential or investor status of the holder would theoretically allow directing part of gains toward down payments for first-time buyers, through subsidy or savings-for-housing programs. Several Canadian provinces have begun exploring provisions in this direction since 2023, without measurable results at this stage.

The second lever is control of institutional purchases. The Canadian precedent is again useful: the federal government introduced in 2023 a temporary ban on real estate purchases for foreign buyers. The measure targeted foreigners, not domestic institutional investors, and its effect on prices was limited. But it indicates that regulatory oversight of buyer categories is politically feasible, even if its effects depend closely on the precision of the target. Some US states have engaged in legislative debates to restrict the purchase of single-family homes by investment funds, without resulting in federal law to date.

The third is direct orientation of construction toward median incomes. Subsidized affordable housing programs have existed for decades, but their scale is insufficient and their targeting often poorly calibrated. The challenge for the coming years is to condition building rights, granted within zoning reform frameworks, to a fraction of housing accessible to households below a certain income threshold. This approach, known as “inclusionary zoning,” is implemented in several American and Canadian cities, with variable results depending on the intensity of obligations imposed on developers.

None of these levers solves the problem on its own. The San Francisco Fed shows a long-term relationship between price and average income; it does not directly establish a conditional relationship with incomes at the top of the distribution or worsening inequality. Supply-side measures alone are not sufficient for all households, but they can improve affordability, including for part of median households. New construction is necessary, but it does not on its own address all needs.

The signals to monitor through the end of the decade are well known: the evolution of the homeownership rate among 30-40-year-olds, the share of institutional investors in purchases of individual homes, and the persistent gap between average and median income in major metropolises. If this gap narrows, through wage growth at the bottom of the distribution, through more progressive taxation of capital income, or through both, the real estate market will respond differently to more abundant supply. If the gap widens, no regulatory relaxation will suffice to reopen homeownership to households currently excluded from it.

Building more remains essential, but for whom exactly

It would be misleading to conclude that zoning deregulation is a dead end. American and Canadian cities suffer from a real housing shortage, sustained by decades of restrictive rules that have limited densification. Empirical research is robust on this point: markets where supply has been durably constrained have experienced greater price increases.

But the San Francisco Fed brings an additional element to this consensus. Canadian analyses suggest that supply must be accompanied by measures targeting vulnerable households, without definitively demonstrating over three years a two-force causal model.

The real difficulty is political, not technical. Building more conflicts with the interests of existing homeowners, who see their wealth threatened by increased supply. Regulating institutional investors conflicts with the interests of powerful financial actors. Redistributing real estate gains conflicts with the interests of households that built their wealth on this appreciation. Each lever mobilizes a coalition of opposition.

The two countries have not necessarily adopted an integrated package combining exactly these three levers at the national scale; this absence must be documented by country, period, and specific measures.

Sources

  1. Federal Reserve Bank of San Francisco Economic Letter 2026, Housing and Inequality: https://cepr.org/voxeu/columns/housing-and-inequality-critical-link-economic-disparities
  2. Chandan Economics, Racial Inequities in US Housing Report 2026 (Chandan Economics, report available on the organization’s website)
  3. Federal Reserve Bank of San Francisco, publications and economic letters: https://www.frbsf.org/economic-research/publications/economic-letter/