Housing affordability is cited as the biggest challenge for prospective homeowners, and is blamed many ills, including:

Chamath Palihapitiya, a Canadian-American venture capitalist and entrepreneur, wrote recently about housing affordability on his Substack, and his argument is directionally right but strategically incomplete. (And his chart on the median age of homebuyers relied on the questionable NAR data.)

His core insight that affordability is a function of monthly payments driven by interest rates, not just home prices, is the correct anchor. The “rate lock-in effect” he highlights is arguably the defining feature of today’s market. 

Many homeowners sitting on sub-4 percent mortgages see selling as an economically irrational move, which chokes supply and keeps inventory structurally constrained. That, in turn, explains the paradox we are seeing in the data. Transaction volumes are near record-low levels while prices remain stubbornly elevated. Palihapitiya is also right that this is not a typical housing cycle. It looks more like a liquidity freeze than a credit-driven unwind.

Where the analysis starts to break down is in what is missing. Chamath implicitly assumes that if rates fall, affordability improves and the market unlocks. That is too clean. Affordability has been structurally impaired by a rising cost stack that does not reverse Fed policy. 

Property taxes are resetting higher, insurance premiums are surging in climate-exposed regions, and maintenance costs remain elevated due to labor constraints. Even if mortgage rates fall by 100 to 150 basis points, the all-in cost of ownership may not meaningfully improve for marginal buyers. This is not just cyclical unaffordability. It is a structural repricing of what it costs to own a home.

He also underweights demand-side risks. A rate-driven recovery assumes a stable or improving consumer, and that is far from guaranteed. Credit conditions are tightening, student loan payments have resumed, and the labor market is showing early signs of fragility at the margins. 

If unemployment rises even modestly, it is unlikely lower rates would revive housing. Demand destruction would collide with frozen supply. That dynamic is more likely to pressure volumes first, and then eventually prices.

There is also a policy shift that directly weakens one of the market’s most important marginal buyers. Legislative momentum, including proposals like the “End Hedge Fund Control of American Homes Act” and similar state-level efforts, signals a clear turn against institutional ownership of single family housing. 

Even where these laws are not fully enacted, the signaling effect matters. Institutional investors are already pulling back. Higher rates have compressed returns, and regulatory risk adds another layer of friction. This creates a structural demand gap at the exact moment affordability is weakest for end users.

That gap matters more than most narratives acknowledge. Institutional capital was not just incremental. In many markets it helped set the floor, particularly across Sunbelt regions and build-to-rent pipelines. 

Remove or weaken those buyers, and housing becomes far more dependent on traditional buyers who are already stretched. Even in a lower rate environment, demand may not respond the way it did in prior cycles because one of the most price insensitive buyer cohorts is no longer as active.

There is also a credibility layer that is difficult to ignore. Palihapitiya was a central figure in the SPAC boom and generated enormous personal wealth while many retail investors absorbed significant losses as those vehicles unwound after 2021. That does not make his housing analysis wrong, but it does provide context. 

There is a pattern of identifying the dominant narrative and leaning into it while underemphasizing downside paths. This piece follows a similar structure. It is strong at diagnosing the primary constraint, which is rates, but less complete in mapping the full range of outcomes.

If there is a useful international template for where US housing could be heading, it is not 2008. It is Japan after its late 1980s asset bubble.

Japan’s housing and land market peaked in the late 1980s, driven by extreme monetary conditions, speculative land buying, and loose credit. When the bubble burst in the early 1990s, prices did not simply correct. They entered a multi-decade decline or stagnation depending on the region. 

In Tokyo, nominal land prices eventually fell by roughly 60 to 80 percent from peak to trough depending on the specific ward and asset type. More importantly, they never fully recovered to bubble-era levels even after decades of monetary easing.

The deeper issue was not just prices. It was demand collapse driven by demographics and psychology.

Japan’s working-age population peaked around the mid-1990s and has been structurally declining since. At the same time, household formation slowed as marriage rates fell and population aging accelerated. Fewer first-time buyers entered the market, while existing owners held onto property longer. 

That combination created a persistent liquidity problem. Even when the Bank of Japan pushed interest rates to effectively zero and later into negative territory, housing did not reflate in a meaningful way.

Policy also reinforced stagnation. Zoning was relatively permissive in many areas, allowing supply to adjust, but that did not translate into rising prices because demand was structurally weakening. 

In addition, cultural preferences shifted toward new builds over existing housing, which led to rapid depreciation of older stock. In many Japanese cities, homes are treated more like depreciating assets than stores of value, which further reduces speculative demand.

The result is a system defined by low returns, low mobility, and low inflation in real estate values even under extreme monetary stimulus.

The key parallel to the US is not demographics, but directionality. The US is not Japan in absolute population terms, but it is moving toward slower household formation growth, aging cohorts, and declining mobility. 

Combine that with high ownership lock-in from low-rate mortgages, rising insurance and tax burdens, and political pressure on institutional demand, and you get a system where the marginal buyer base is thinning rather than expanding.

That is the core risk. Not collapse, but ossification.

If this analysis is correct, the mistake is to assume housing is still a cyclical, beta-driven market. It is increasingly behaving like a liquidity-constrained, low-turnover asset class.

The first implication is that price appreciation is no longer the primary driver of returns in most markets. Instead, the dominant variable is entry price discipline combined with cash flow resilience. That means waiting for forced sellers, distressed inventory, or structural mispricing at the micro level rather than relying on broad macro tailwinds.

Second, leverage becomes more dangerous in both directions. In prior cycles, leverage amplified gains during refinancing waves and price expansion phases. In a stagnation regime, leverage primarily amplifies illiquidity. The cost of being wrong is not just mark-to-market loss, but time drag with no liquidity exit.

Third, the best opportunities likely shift toward operational real estate rather than passive appreciation. This includes value-add rentals where rent is under-market, small multifamily with inefficiencies, or distressed assets where management improvements drive yield rather than market beta. The key variable becomes internal alpha generation, not macro uplift.

Fourth, geographic dispersion matters more than national exposure. Markets with strong job growth, constrained supply pipelines, and younger demographic inflows may still outperform, but the spread between winners and losers widens. The US housing market stops behaving like a single trade and becomes a set of fragmented local micro-markets.

Finally, the highest probability outcome over the next decade is not a return to 2020-era dynamism. It is a slow grind of low transaction volume, modest nominal price changes, and negative real returns in many regions. 

That is structurally consistent with a Japan-like stagnation regime, even if the US version is less extreme in demographics but more distorted by financing structure and policy intervention.

Palihapitiya is right that rates matter. He is wrong that rates are the story. The deeper story is that housing is transitioning from a cyclical asset class into a structurally stagnant one, where liquidity, not price direction, becomes the defining constraint.

Annual home price growth was up 0.5% in February, the slowest pace in over ten years, according to Cotality’s Home Price Index. This helped improve affordability slightly, as principal and interest payments dropped 14%, compared to the peak in May 2024. Uncertainty — driven by global disruptions, economic and job market weaknesses, and elevated mortgage rates — is slowing demand. Markets vary widely regionally, with San Francisco and the Bay Area feeling a bump from investments in artificial intelligence and more affordable prices in historical terms, as there has been modest appreciation in recent years. The Northeast has remained strong, while the Sun Belt has recovered from the doldrums. The Midwest, Mountain and Northern West regions have cooled. Seven of the top ten in price declines in Florida. Others are in Texas, the Washington DC metro area, and the West. 

​​The debate over private listings revolves around choice vs. transparency, and most professionals believe that taking a home off the MLS does not benefit the seller because it may bring a lower sale price. But a new study that Real Estate News reported on suggests the opposite, and offers some evidence that private listings sell for a higher number, at least in Dallas. Darren Hayunga, an associate professor at the business school at the University of Georgia, compared pocket listing sales to homes listed on the MLS in Dallas between 2002 and 2022. He found the average pocket listing fetched a premium of 1.7% — but it fell to a statistically insignificant percentage after the National Association of Realtors revised its Clear Cooperation Policy in March 2025. Some studies have said that buyers who sell off the MLS are getting lower prices. Zillow characterized Hayunga’s report as “an outlier.”

JUST BECAUSE

Why is it five times as expensive to put in an elevator in New York City as it is in Switzerland? In the pantheon of unintended consequences, Brian Potter found this gem for his Construction Physics newsletter and it’s a good follow to our essay last week about building codes: UCLA’s Lewis Center looked at how building codes are developed, and found that provisions added to them are not subject to any cost-benefit analysis. “When a fire marshall in Glendale, Arizona proposed two decades ago that US elevators be required to be larger than international standards to accommodate a 7-ft stretcher lying flat, the cost impact was reported as “none” (Grabar 2025). Today, a basic four-stop elevator in New York City costs about $158,000, compared to $36,000 in Switzerland (Smith 2024). These costs mean more expensive elevator buildings, and more five- and six-story walk-ups are built in the US, “which are inaccessible to many elderly and disabled tenants and are unheard of in most high-income countries.” (Smith 2024). 

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