Affordability
The growing housing shortage is the primary reason for the affordability crisis
Orphe Divounguy
•Jun 18 2024
- The nation’s housing deficit rose to 4.5 million in 2022, up from 4.3 million in 2021.
- Of the country’s largest metro areas, Boston, Sacramento and Portland had the worst housing unit deficits.
- 2023 was the strongest year for U.S. home completions since 2007, but 1.4 million additional homes aren’t enough to make a meaningful dent in the nation’s existing housing shortage, due to the increase in the number of families.
Residential home construction activity boomed in 2022. Just under 1.4 million units were built that year, the most in any calendar year since 2007. And yet, despite this uptick in new homes entering the market, the nation’s housing deficit deepened. A new estimate suggests that the U.S. was short 4.5 million homes in 2022, up from 4.3 million the year before.
The deficit is defined as the difference between two factors: the number of families who were likely to be seeking their own home and the number of homes that were available for rent or sale. At any given time in 2022, there were about 3.55 million vacant homes available for sale or for rent. At the same time, there were approximately 8.09 million individuals or families living with non-relatives, potentially preferring to live on their own – a difference of more than 4.5 million so-called “missing homes.”
Despite an uptick in homebuilding the shortage of available homes continues to grow, mainly because of the increase in the nation’s family count and very sluggish construction activity in the decade preceding the pandemic. When new households are formed faster than the increase in the housing stock, the share of vacant homes falls, putting upward pressure on prices and rents. The number of vacant and available homes fell in 2022 by 3.8% compared to a year earlier. In 2022, the national vacancy rate – defined as the share of homes that are not occupied and available for rent or sale – fell to just 2.5%, touching a multi-decade low. This decline marked the continuation of a downward trend that originated during the tail end of the Global Financial Crisis.
Meanwhile, the number of families – groups of related individuals living in the same home – in the U.S. increased by 1.8 million in 2022 [1], much stronger than the upticks in 2018 and 2019.
Among the largest 50 metropolitan areas, the worst housing shortages can be found in coastal markets, with five of the 10 worst in California. Boston, Sacramento, Portland, San Diego, San Francisco, San Jose, Seattle, Minneapolis, Los Angeles, and Austin have the worst housing shortages in the country.
While the presence of geographic constraints to building plays a role on the coasts, these also happen to be markets with the most strict building regulations in the country. Population growth also plays an important role in explaining differences in housing deficits across regions. Regions that attract the most newcomers — such as Austin and Seattle — will tend to see their housing deficit worsen, at least in the short run.
Among the largest 50 metros, the regions that saw the largest increase in housing supply in 2022 were Austin, Orlando, Jacksonville, Dallas, Houston, San Antonio, Raleigh, Nashville, Phoenix, and Seattle. Seven of these metros also saw the largest increases in the number of new families in 2022. But when residential construction begins to lag, the housing shortage worsens.
Building our way back
Building more homes is of course an obvious step toward chipping away at this persistent shortage. But while the pace of construction has shown signs of life of late, it will still need to accelerate significantly in order to have any hope at making a meaningful change in this regard. Roughly 1.45 million homes were completed in 2023, marking the best calendar year for construction since the Great Recession. However, a large pre-existing deficit suggests that even if the nation were to see no population growth, that increase is still far below what would have been needed to close the deficit.
Moving forward
Moving forwardSome steps in the right direction include zoning reforms to allow for more housing units as opposed to solely single-family, detached homes. This alone could create millions of critically needed new housing units and surveys show most residents would support such changes in their own neighborhoods to increase supply. More steps, such as eliminating or reducing parking requirements, minimizing building permit approval delays and establishing and expanding affordable housing trust funds should also be explored. Ultimately, developers need to be at the forefront of new home construction in order to meet the demand that exists in every part of the housing market.
[1] Families in this case are defined as sets of individuals who are related within each household. The number of families who are likely to be seeking their own home is defined by the number of families living in other families’ housing units. The family count comes from IPUMS USA using the FAMUNIT variable and the appropriate weights.
