A safe, decent, affordable home is a basic necessity for us all. A home provides more than just shelter; it connects us to family, friends, and our work (how many of us are working from home while reading this?). Because of its importance in our lives, we must prioritize housing in the right place and at the right price. 

We have all heard of the “30% rule” for housing affordability (which dates back to the 1960s); however, the true cost of a home is a bundle of four interconnected expenses—housing, transportation, energy, and insurance—that together can consume upwards of 50%–60% of household incomes.

Focusing on housing costs alone may be misleading without incorporating related expenses and can easily trap households when costs rise. If a home is affordable on paper, but living there means everything else costs you more, it’s not actually affordable—it’s just high housing costs by a different name. That's why smart growth focuses on more than the price of a home. It considers where that home is located, how residents get around, and what it costs to live there day-to-day.

It’s no secret that housing costs have risen significantly in recent years, due in part to increases in home prices and interest rates, as well as limited housing supply. When considering owning a home, most of us tend to focus on the monthly housing bill. However, these figures often include several hidden costs. For example, a typical monthly mortgage payment usually consists of four main components: principal, interest, taxes, and insurance (commonly known as PITI).  This includes the repayment of the loan balance, interest to the lender, property taxes, and homeowners’ insurance. For those who live in a subdivision or condominium, there may also be homeowner association (HOA) fees, which have been steadily rising in recent years. Another costly expense: maintenance costs such as home repairs, landscaping, and renter amenities like valet trash service, fitness facilities, and the pool. Once you include annual price increases—typically 3%-5% for renters and 3% on average for property taxes—you now have a more accurate picture of total housing costs.

Let’s now discuss transportation costs.

Whether your mode of transport includes a car, bus, train, or plane, there’s definitely a price tag attached. According to the Bureau of Labor Statistics, total annual household expenditures in the United States averaged $78,535 in 2024—equivalent to an average of $6,545 per month. The two largest expenditures, housing and transportation, accounted for over 50 percent of these costs. On average, households spend $1,110 per month, or 17%, on transportation, with cars being the primary means of travel to work (68% of workers commute by car). Homebuying households may seek lower housing costs by moving further away from city centers, but any savings are often offset by the need to own multiple vehicles, rising gas prices, and car maintenance expenses. Renters in suburban or sprawling apartment complexes often pay an additional $50 to $200 per month for reserved parking spots, garages, or guest permits. Because transportation costs consume a significant share of a household’s income, balancing the trade-off between lower urban housing costs and higher transit access versus suburban housing costs and car dependence is essential for budgeting success.  

Transportation costs aren't the only financial pressure related to housing.

Costly energy bills are affecting housing affordability across the country. Since 2010, the average price of electricity across the U.S. has risen by almost 30%, with similar increases for gas and water. These costs are driven by a combination of factors, including extreme weather events like wildfires and hurricanes, which can impact an already outdated energy infrastructure, a lack of upgrades and modernization to better equip for resilience, and rapid market unpredictability around fossil-fuel costs. For homeowners, the burdens can be immediate and unexpected. In drought-prone places like Arizona, new housing subdivisions are leaving homeowners to cope with sudden financial pressures tied to water scarcity. Larger, older homes are often more costly to heat and cool, compounding these challenges. For some, rising energy costs have become a deciding factor in whether to stay put or relocate to other states with lower costs of living.

Renters also face an equally serious set of pressures. Because they typically have little control over the age, condition, or energy efficiency of their units, renters often absorb high utility costs without the ability to make improvements. Economic and racial gaps in energy affordability, often rooted in exclusionary zoning practices, concentrate these burdens in lower-income and communities of color — populations that skew heavily renter. For households, rising energy costs compound already tight housing budgets, leaving little room to absorb further increases.

Another factor contributing to rising housing costs is insurance. Hurricanes, floods, wildfires, tornadoes, severe hail, and other climate-driven disasters are inflicting billions of dollars in damage on homes across the country, placing enormous strain on homeowners, renters, and insurers. As extreme weather events become more frequent and more severe, residential property losses steadily mount and insurance claims surge. Homeowner and renter insurance premiums have increased dramatically, especially in climate-exposed regions such as Florida, California, Louisiana, and Gulf Coast cities. Climate change and insurance costs are inextricably intertwined. As overall climate volatility grows, insurance companies are rethinking where, how, and whether they offer coverage, with some markets losing private carriers altogether. States with greater exposure to natural disasters also face higher insurance premiums and depressed housing values, further deepening the nation's affordable housing crisis.  Households can expect reduced federal support as disaster management shifts solely to the states.

Addressing the true cost of a home

None of the solutions below can succeed in isolation. Policymakers, developers, insurers, and community advocates must work together to address the true cost of a home — not just the monthly rent or mortgage payment. Zoning and land-use reform are essential smart growth tools that can help not only lower housing costs, but also related expenses such as transportation, energy, and insurance. Every household deserves a home in the right place, at a price that works.

Addressing the true cost of a home requires bold, coordinated action across all four pillars:

Housing

• Increases in housing supply can aid affordability by providing more housing options and slowing cost increases. To support lower household costs, housing supply should be directed to areas with good access to transportation, jobs, services, and amenities.
• States and local governments need to review how zoning and land-use regulations limit the amount and type of housing that can be built, and implement pro-housing interventions. For example, by allowing taller buildings or smaller units, more homes can fit on the same-sized lot.
• Households should spend what is financially feasible for them. Housing-related costs will vary depending on income and where you live, so it’s important to calculate costs across these four expense factors and weigh the tradeoffs.

Transportation

• Improving our transportation systems is important for reducing housing costs and emissions. Investing in public transit and incentivizing transit-oriented development (TOD) can help reduce household dependence on cars and lower transportation burdens.
• Tools such as the Housing + Transportation (H+T) Affordability Index are useful for households, planners, and policymakers alike to better understand how housing affordability and transportation intersect at the neighborhood level.
• Households can lower commute costs by using transit, carpooling to split costs, driving EVs, telecommuting to minimize travel days, and biking or walking.

Energy

• More efficient, smaller housing units typically have lower energy costs. Embracing smaller homes can yield significant energy savings.
• Sustainable land-use planning offers a promising approach to reducing energy consumption and improving energy efficiency. Investments in clean energy (solar and wind farms) and grid modernization—particularly in low-income and historically underserved communities—can lower utility costs while building long-term climate resilience.
• Policy and technological advances that support clean and reliable power may also drive investment in energy infrastructure.
• Households can take simple steps to lower energy and utility costs, including properly insulating homes, unplugging “vampire” appliances, monitoring thermostat usage, and installing ENERGY STAR appliances.

Insurance 

• Stronger building codes, including voluntary resilience standards such as FORTIFIED, and smarter land-use policies can also help stabilize markets and protect homeowners in disaster-prone regions.
• Building more housing in areas with lower climate vulnerability is critical.
• At the state level, many governments have established their own insurance programs - Florida and California, for example, operate "insurer of last resort" programs.
• The insurance industry is currently exploring alternative risk-mitigation approaches, examining building materials, housing types, building codes, and the natural environment to help minimize costs.
• Tackling rising insurance costs is not a quick fix and will take a concerted effort from both the policy and industry perspectives. However, households can take steps to monitor costs, such as using climate-risk measures, including installing storm shutters or impact-resistant roofing materials, and assessing your home or neighborhood’s climate risk.