The Truth About Affordability

As 2026 approaches, affordability is emerging as a defining issue in many wealthy economies. Voters express frustration with rising costs, even as broader economic indicators show resilience in wages and productivity. This article examines the complexities behind the affordability debate, offering historical context, economic analysis, and regional comparisons to illuminate why prices feel burdensome for many households without implying a universal decline in living standards.

Historical context: cycles, costs, and the texture of growth Affordability concerns are not new. In the postwar era, households consistently sought a balance between rising incomes and the price of essentials. The 1970s, for instance, featured stagflation and energy shocks that distorted both consumer prices and expectations. Governments responded with mix-and-match policy tools—monetary tightening, price controls, and targeted subsidies—often with uneven success. The late 1990s and early 2000s brought globalization and rapid technological advancement, which generally lowered the cost of many consumer goods, while service sectors began absorbing a larger share of household budgets.

Today’s affordability narrative has roots in both price dynamics and asset markets. Prices for basic goods and services have moved in tandem with inflation at various points, but household wealth has also shifted toward assets that require substantial upfront investment—real estate, in particular. When asset prices rise faster than wages, the perceived affordability gap widens even if everyday purchases become relatively less expensive or stay stable. This divergence between consumer prices and asset values helps explain why a broad-based perception of un affordability persists even in otherwise robust economies.

Economic mechanics: what drives the perception of high costs A key element of the affordability discussion is the distinction between the cost of living and the cost of goods and services. Core goods—clothing, electronics, groceries—have benefited from global supply chains, scale, and productivity gains. Yet services, especially housing, healthcare, and childcare, often lag in productivity and face regulatory constraints that restrict supply and competition. In some regions, housing markets display a structural shortage of dwellings relative to population growth, pushing prices and rents higher. In others, regulatory regimes, licensing requirements, and zoning rules constrain new construction and restrict competition, sustaining elevated service prices.

Wages add another layer. When wages grow alongside or above inflation in a broad segment of the workforce, households can absorb price increases more easily. However, wage growth can be uneven across sectors, regions, and skill levels. Even with rising incomes on average, those at the lower end of the wage distribution may experience a different reality, feeling the squeeze from rising rents and out-of-pocket costs for health care, education, and transportation. This dynamic helps explain why the affordability debate persists across voters who otherwise share a favorable view of macroeconomic performance.

Regional comparisons: different landscapes of cost and opportunity Across North America and Europe, affordability experiences diverge because the mix of housing markets, energy costs, public services, and social safety nets varies. In parts of Europe with regulated healthcare, housing shortages and long wait times can translate into higher perceived costs, even if the nominal price of a medical visit may be lower than in other regions. Meanwhile, in North American cities with tight housing supply and escalating rents, the affordability narrative often concentrates on real estate without fully capturing changes in consumer prices for other goods and services.

In both regions, the role of energy has become prominent. Energy prices influence household budgets directly and indirectly through production costs for goods and services. Regions with energy price volatility—whether due to policy shifts, supply disruptions, or geopolitical tensions—tend to experience greater consumer cost pressures. The interaction between energy markets and household finances helps explain why affordability concerns surface during periods of price swings, even when the broader economy remains resilient.

Asset growth versus wage growth: a central tension A recurring line of analysis in affordability debates is the disconnect between asset accumulation and wage progress. For households that own assets, rising prices for stock and real estate can boost perceived wealth, creating a sense of stability or growth. For those without significant asset ownership, however, rapid asset inflation can deepen inequality and fuel concerns about upward mobility.

In the United States, for example, wealth-to-output ratios have reached historically high levels. This disparity highlights a supply-side dynamic: as the economy shifts toward high-productivity, capital-intensive sectors, the returns to owning capital outpace wage gains for many workers. The result is a two-tier experience where some households enjoy rising net worth while others struggle to secure affordable housing, childcare, and healthcare. Recognizing this bifurcation is essential for understanding why affordability remains a politically potent topic even in periods of solid overall growth.

Policy considerations: what works, what risks misfire Policy responses to affordability must navigate trade-offs between efficiency, equity, and long-run growth. Several avenues have historically shown promise, while others carry the risk of unintended consequences if applied in isolation or without gradual implementation.

• Increase housing supply: Streamlining permitting, relaxing excessive zoning restrictions, and incentivizing private and public development can help alleviate housing costs over time. Critics warn that rapid changes may alter neighborhood character or strain local infrastructure if not paired with comprehensive planning.
• Expand productive competition in service sectors: Reducing entry barriers and licensing requirements in areas such as home care, elder care, and many professional services can lower prices and improve service quality. Policymakers should balance consumer protections with the benefits of competition to avoid creating new access bottlenecks.
• Embrace targeted social support: Direct transfers, subsidies, or tax credits aimed at the most vulnerable households can cushion the impact of cost increases without broadly distorting incentives. The challenge lies in ensuring coverage without creating excessive dependency or fiscal drag.
• Invest in productivity-enhancing infrastructure: Public investment in transport, energy efficiency, and digital infrastructure can reduce long-run costs for households and firms, supporting lower prices for goods and services as well as higher real incomes.
• Reforms in energy and industrial policy: Aligning energy competitiveness with environmental goals can reduce exposure to volatile commodity markets. Streamlining regulations that raise operating costs for essential industries without compromising safety and quality can help moderate service prices.

Caution against blunt tools: lessons from past experiments Past attempts to blunt price pressures with broad controls or temporary relief measures often produced mixed outcomes. Price caps and aggressive stimulus packages can distort markets, misallocate resources, and create inflationary pressures if implemented when the economy is already near capacity. Historical episodes underscore the importance of well-calibrated, evidence-based interventions rather than blanket policy shorthands.

Public sentiment and the politics of affordability Affordability rhetoric taps into real concerns about everyday life: the ability to purchase necessities, to save, and to plan for the future. It also intersects with broader questions about economic opportunity, mobility, and the distribution of wealth. Policymakers face the challenge of addressing perceived and actual cost pressures without compromising long-term growth or inviting policy misfires rooted in overly simplistic narratives.

Public reaction to affordability news can be swift and visceral. When households feel the pinch of higher living costs after a period of wage stagnation or rising debt service, support for economic reforms often grows, even if those reforms take time to bear fruit. Conversely, if policy actions are perceived as favoring one demographic over another, the public mood can turn sour quickly, complicating governance during a period of transition.

The road ahead: embracing nuance in a complex economy The affordability debate is not a simple story of prices going up or down. It is a multifaceted assessment of how households experience costs in a dynamic economy where technology, globalization, demographics, and policy interact in unpredictable ways. Acknowledging both the legitimate concerns about rising costs in certain sectors and the broader context of wage growth and productivity is essential for sound public discourse and policymaking.

Regional evidence suggests that the most durable improvements come from interventions that expand housing supply, bolster competition in high-cost service sectors, and invest in productivity-enhancing infrastructure. These steps address the structural roots of affordability challenges rather than merely damping price signals or redistributing resources after costs have risen.

In sum, the affordability issue is a reflection of prosperity, not necessarily a decline in living standards. It highlights how gains in one dimension of the economy can create new pressures in another. By pursuing targeted, evidence-based reforms that expand opportunity and reduce real costs for households, policymakers can navigate the intricate balance between sustaining growth and maintaining affordable living standards for a broad cross-section of society.