It’s difficult to take in the sheer scale of the regional—and even global—chaos that Trump’s war on Iran has unleashed. That’s to say nothing of the death and destruction in Iran itself, including the massacre of an elementary school full of children.
I don’t have much more than a reasonably informed layperson’s understanding of Iran, the surrounding region, international relations, military affairs or global oil markets, so I’ve got little to add on any of those topics other than my own disgust and horror at my government’s actions. But with the closing of the Strait of Hormuz and the threat of a global oil shortage, the Iran War has come to touch my own area of specialization. So let’s talk about how this could affect housing affordability.
The short answer, which should surprise no one, is that this war is likely to make an already bad situation considerably worse.
An oil shortage and durable spike in oil prices is likely to lead to across-the-board inflation. Needless to say, that would add to the inflationary pressure on rents and home prices, particularly in areas where they are already inflated due to an imbalance between demand and supply. But there’s another reason why housing costs in particular are sensitive to an oil shortage: it could lead to a collapse in housing production, plunging us even deeper into an already historic crisis.
Financing for housing construction, particularly multifamily housing construction, is a delicate thing. Developers need to contend with a lot of different cost/financing dimensions, and a significant shift in any one of them can make the difference between a financially feasible project—one that pencils out, in the professional argot—and one that never breaks ground. An oil shortage hits several of those dimensions simultaneously:
1.) Interest rates. The biggest thing is how the Fed responds to an oil shortage. If Jerome Powell hikes interest rates—and he might have little choice—then that’s going to dry up investment in housing development fairly quickly. Perversely, this exacerbates housing cost inflation, which contributes to overall inflation, which bolsters the case for maintaining high interest rates, which further suppresses housing production … and so on.
2.) Raw materials. Oil is also a direct input in the housing production process, which means an oil shortage hits production directly at the material level. As a report from UPenn’s Kleinman Center for Energy Policy puts it: “For more than fifty years, a majority of construction materials have been engineered using polymers for the purposes of achieving a range of advanced performance capacities. Even wood, the most traditional of materials, is widely manipulated using cold-cured synthetic resin glues for increasing its structural strength and moisture resistance. More typically, polyvinyl chlorides are used in plumbing supplies, exterior sheathing, interior surfaces, furniture, and landscaping.”
The report argues that this is a bad thing, and I’d agree. But that’s the reality we’re dealing with right now. We’re not going to crash decarbonize the construction industry in time to prevent potentially severe price impacts.
Speaking of which,
3.) Transportation. Oil is also how the vast majority of these building materials get to building sites. So we’re looking at a situation where building materials get considerably more expensive even as developers lose access to financing.
The above list doesn’t even touch on other issues, such as how oil-powered inflation could affect labor costs. But my educated guess is that interest rate hikes are going to be by far the biggest factor if the effective closure of the strait leads to an inflationary shock.
How big a shock are we talking about? It’s hard to say. For comparison, I took a look at what happened to new housing starts during and after the oil shocks that took place in 1973 and 1979. In both cases, it looks like housing starts plunged by nearly 50% within a couple of years of the shock.
I’m not saying we’ll see the same pattern this time around. There are two many confounding factors at play. But I do think it’s reasonable to assume that whatever effect a 2026 oil shock has, it will be negative. And that effect could very easily cancel out all of the hard work that YIMBYs have been doing on land use reform at the state, local, and federal level, at least in the near term. It’s all well and good to upzone a parcel of land so that it can accommodate 10 units instead of one. But if no one can secure the financing to build those 10 units, then it doesn’t really matter what the zoning is.
To be clear, that doesn’t mean that anyone should ease up on the push for land use reform. If and when economic conditions turn around again, zoning and permitting rules very much will matter. But in the meantime, we’re at risk of losing significant ground on housing production, despite everything.
There are a few strategic lessons we can glean from this whole mess. The first is on the primacy of financing to housing production and the need for public counter-cyclical financing instruments (such as the national housing construction fund proposed by the Center for Public Enterprise) to ensure that downturns in the investment cycle don’t threaten the housing supply. The second lesson is on the need to quickly decarbonize the American economy, both for the sake of planetary survival and domestic resource security.
The third lesson is one I keep coming back to, regarding the prospects for a left-right abundance synthesis. It’s all fine and dandy—even deeply necessary—to court bipartisan support for pro-housing reforms. But any attempt to form a shared movement with MAGA-aligned “dark abundance” types is a fool’s errand, or worse. Trump and the ideologues who surround him are not normal counterparties in a democratic game of give-and-take politics. They are a destructive force that must be resisted on every single front. The enormous cost of the war on Iran—not only when it comes to abundance priorities, but also when it comes to the far deeper threats to international stability, America’s global standing, and the lives of millions of innocent people—is just further confirmation of this.