Cities Under Pressure: Urban Economics & The Global Housing Crisis

by Le Xuan Yeo

“We need to build 96000 houses a day over the next 15 years to meet 2030 targets.” (UN Habitat)

Such a figure is staggering, but it indeed is the reality that many face. It reflects the compounding global gaps of informal settlements, climate-displaced communities and generations of underinvestment. And today, over 3 billion people live in unsafe housing with 1.1 billion people living in informal settlements, and such a number could rise to 3 billion by 2050. With Sustainable Development Goal 11.1 aiming to ensure access for all to adequate, safe and affordable housing, basic services and the upgrading of slums, how can we achieve this as a whole if people do not even have a roof over their heads? 

To grasp both the scale and urgency of this issue, I will situate it within the broader framework of urban economics. After all, the housing crisis is not simply about bricks and mortar, it is about markets that fail millions, policies that ignore structural inequalities and systems that too often prioritise investment returns over human dignity. 

An Urban Economics Framework

Housing is both a basic human need and a central economic goal, yet, unlike most goods, supply cannot adjust quickly to rising demand. In urban economics, housing is notoriously inelastic: populations grow faster than housing units can be produced, particularly in major cities where land, regulation and costs constrain construction. With cities around the world battling a housing crisis in recent decades, further exacerbated by the cost-of-living crisis that saw inflation reach record highs in 2022, it is important to assess the supply-and-demand factors influencing housing. 

On supply, the world today builds far too few houses. In major developed economies, housing lags behind demonstrated demand. For example, in Europe’s largest economy, Germany, a government-commissioned study found that the country must build 320,000 new apartments per year by 2030 simply to meet demand, but permits and starts currently fall well short. In cities such as London, private developers build where profits are highest, often in luxury sectors with high returns, while low income and workforce housing languishes because margins are thin and risks appear large. As for emerging economies, the challenge is often different but no less severe. Informal settlements expand because formal housing is unavailable or unaffordable, and millions of urban residents live without secure tenure or basic services. Africa’s urban housing sector is dominated by informal dwellings, accounting for 62% of urban units in some regions.

As for demand, urbanisation is the dominant demographic trend of our time. According to the UN Department of Economic and Social Affairs, cities now house 45% of the global population, a share that has more than doubled since 1950, and by 2050 two-thirds of humanity is projected to live in urban areas. In urban economics, we normally expect the cause-and-effect relationship of urbanisation leading to more people moving into cities, which has attracted so many people from the rural areas in search of jobs and better living conditions over the time. The creation of jobs leads to rising incomes, enabling people to have greater purchasing power and creating formal housing demand. However, in many Global South contexts, urbanisation is happening without enough formal job growth. People have been sold the utopic vision that cities are where a better future lies ahead, but incomes remain low and unstable, and this instead creates demand for housing that the formal market cannot supply at affordable prices. 

Cities today thus function both as engines of prosperity and epicenters of inequality. In fact, homelessness is a growing problem in the Global North. In many Organisation for Economic Co-operation and Development countries, households spend nearly one-fifth of disposable income on housing, while in costly metro regions the share can soar above 30%. Worse still, in the United States, it is concerning how 21.6 million households were spending more than 50% of income on housing in 2024, another new high. 

Solving the Housing Crisis

The housing crisis certainly sounds daunting but UN Habitat Secretary-General Anacláudia Rossbach remains motivated in this field of work. The UN Habitat aims to extend their capacity to implement their mandate through very strategic partnerships and they have been developing a whole front of partnerships with universities and academia to maximise the knowledge and expertise that is out there. After all, building and leveraging local capacity is very important in developing a sub-regional layer that truly addresses the needs of local communities. 

What I believe is more important, however, is a fundamental restructuring of the financial mechanism for the housing market. Current mechanisms are very disconnected from the city level, and if we do not solve such structural issues, we will ultimately erode our own resilience. Scarcity is certainly a limiting factor but the key problem is how current housing markets are a data-driven, speculative asset system, where people treat a house as an investment to gain even more profits. To address the housing crisis, we need to move towards equity-based models, such as public-private partnerships and land value capture to leverage private capital for affordable housing. Another effective solution would be replacing traditional property taxes with a land value tax that captures publicly created gains and vacancy taxes that curb speculative demand. This must be supplemented by “by-right” development that places the distribution of affordable housing at the centre of social policy, where housing projects meeting basic standards proceed without lengthy discretionary review and are prioritised in land use policies, so as to reduce unnecessary obstacles to building. 

In conclusion, urban economics tells us how urbanisation becomes a mechanism of exclusion when supply falters but demand remains at an all time high. The challenge ahead for the housing crisis demands global cooperation, local innovation and sustained governance at every level. What remains is the collective will to build cities where everyone has a right to a decent home and a fair share in the economic promise of urban life.

References List:

1. Goel, Ankita, and Peter Lawrence. “U.S. Housing Cost Burdens Reach All-Time High in 2024 as Pressures Expand Across Income Groups.” Notes from Novogradac, February 12, 2026. https://www.novoco.com/notes-from-novogradac/us-housing-cost-burdens-reach-alltime-high-in-2024-as-pressures-expand-across-income-groups.
2. International Monetary Fund. Finance & Development, December 2024. PDF. https://www.imf.org/-/media/files/publications/fandd/article/2024/12/december-finance-and-development.pdf.
3. Kraemer, Christian, Tom Sims, and Tomasz Janowski. “Germany Must Build 320,000 Apartments Yearly to Meet Housing Demand, Study Shows.” Reuters, March 20, 2025. https://www.reuters.com/markets/europe/germany-must-build-320000-apartments-yearly-meet-housing-demand-study-shows-2025-03-20/.
4. Organisation for Economic Co-operation and Development. Housing and Inclusive Growth. OECD, 2020. https://www.oecd.org/content/dam/oecd/en/publications/reports/2020/09/housing-and-inclusive-growth_6034487d/6ef36f4b-en.pdf.
5. Smit, Warren. “Urban Governance in Africa: An Overview.” International Development Policy | Revue internationale de politique de développement 10 (2018): 55–77. DOI:10.4000/poldev.2637. http://journals.openedition.org/poldev/2637.
6. United Nations Human Settlements Programme (UN-Habitat). WUF13 Background Paper: Housing the World: Safe and Resilient Cities and Communities. October 2025. PDF. https://wuf.unhabitat.org/sites/default/files/pdf/wuf13-background-paper.pdf.
7. United Nations. “Cities are home to 45 per cent of the global population, with megacities continuing to grow, UN report finds.” UN.org, 2025. https://www.un.org/fr/node/236908.