Owning a home is the essence of the American dream. But it’s an increasingly unaffordable one for many Americans, even as desire for homeownership remains steadfast. This has cascading social and economic effects: when people cannot afford homes, they delay marriage and have fewer children, suffer from more loneliness and financial instability throughout their lives, and are less involved in their communities.

A major contributor to rising home prices: not enough homes are being built. Since the Great Financial Crisis (GFC) single-family housing supply has not kept up with demand, lagging 1990s construction rates by 20 percent. This is occurring even as home prices continue to increase, signaling a shortage. Construction of starter homes is also down.

This is happening around the country. While lower absolute sticker prices for single-family homes make “red” states appear less expensive than those in certain “blue” states, this is a mirage that does not account for lower salaries. After adjusting home prices for median incomes, red states have also become more unaffordable for residents over the last decade.

Capital Crunch explores an underexamined factor that has contributed to America’s housing crisis: financing and capital markets. Due to a series of federal policy choices that began in the late 1970s and accelerated in the wake of the Great Financial Crisis, smaller homebuilders—generally speaking, any privately-held builder that makes under 500 closings per year —have had increasing difficulty accessing capital as the number of local financing sources has dwindled. Unlike for multifamily construction, there has not been substantial public funding to offset the financing gap for single family-home construction. As a result, the number of homebuilders has fallen since the Great Financial Crisis, and remains well below early 2000s levels. At the same time, publicly-traded homebuilders—who now lead every major regional market —have apparently responded to Wall Street earnings expectations by hoarding land and establishing price floors for their homes, instead of building enough to meet demand. Although various other factors, such as construction costs and high interest rates, have also constrained homebuilding, this financing gap between smaller homebuilders and publicly traded national giants is a significant part of why, by some estimates, America is short nearly 4 million homes.

Capital Crunch concludes with policy recommendations at the federal, state, and local levels to reinvigorate the housing construction industry, helping smaller homebuilders access capital, preventing large homebuilders and investors from hoarding land and homes, removing red tape that restricts construction of starter and manufactured homes, and strengthening fair competition.