The U.S. is now short 4.5 million homes as the housing deficit grows
The U.S. housing shortage has grown to 4.5 million homes in 2022, up from 4.3 million the previous year, exacerbating the housing affordability crisis.
Despite the pandemic-era construction boom, only 1.4 million homes were built in 2022, while 1.8 million new families were formed. This imbalance has driven up home prices, making homeownership increasingly unattainable for many.
Regions with stricter land-use regulations are particularly affected, with fewer people able to afford mortgage payments on typical homes. The Wharton Residential Land Use Regulatory Index highlights that highly regulated markets see persistent housing supply shortages.
In 2023, approximately 1.45 million homes were completed, indicating some progress. Experts advocate for zoning reforms to increase housing density and improve affordability.
- 1.45 million homes were completed in 2023, showing progress in addressing the housing shortage.
- Experts agree that zoning reforms can significantly improve housing affordability.
- Pandemic-era construction boom resulted in 1.4 million homes built in 2022, the best year since the Great Recession.
- The U.S. housing shortage increased to 4.5 million homes in 2022, up from 4.3 million the previous year.
- Only 1.4 million homes were built in 2022, insufficient for the 1.8 million new families formed that year.
- Regions with stricter land-use regulations have fewer affordable housing options.
- The imbalance between supply and demand has driven up home prices, worsening affordability.
- The housing deficit has been a long-term issue, affecting both homeowners and renters.
Insights
The U.S. housing shortage of 4.5 million homes is a bold headline that will catch any investor's eye. Behind this number lies a myriad of economic implications. Increased housing prices are one of the immediate effects. Limited supply means higher prices, impacting both purchasing and rental markets. For real estate investors, this could mean higher rental yields and property appreciation in the short term. However, the long-term situation might be more complex. If prices climb too high, it can dampen demand as fewer people can afford homes, potentially leading to a market correction.
Investors should also consider the impact of high mortgage rates, which make borrowing more expensive and put further pressure on affordability. Higher rates can slow down home purchases, affecting sales volumes and related sectors, like home improvement and construction materials.
In terms of industry norms, it's notable that despite a construction boom during the pandemic, the deficit grew. This speaks to the deep-rooted issues in the housing market, primarily driven by regulatory barriers and a historical underbuild. Market participants might need to brace for potential policy changes aimed at increasing housing supply, such as zoning reforms, which could influence future market dynamics.
The data shows a significant geographical variance in housing shortages. Metros like New York, Chicago and Los Angeles exhibit stark deficiencies, while some areas like Washington, D.C. and San Francisco show slight improvements. This disparity can guide regional investment strategies; areas with severe shortages might offer better short-term gains in property values and rental income.
One should also consider the impact of regulatory environments on housing affordability. The Wharton Residential Land Use Regulatory Index highlights that stricter land-use regulations correlate with less housing affordability. Regions with more lenient zoning laws might see more rapid construction and potentially, better affordability in the longer term.
For a retail investor, understanding these dynamics can offer insights into where to allocate resources. Markets with a severe shortage might seem attractive, but the regulatory landscape and potential for policy changes should be factored in for a balanced investment approach.
The article emphasizes the importance of zoning reforms to address the housing shortage. From an urban economics perspective, increasing housing density through zoning changes can be a key solution. Relaxing zoning laws to allow multi-family units in previously single-family zones can significantly alleviate the shortage without the need for expansive new developments.
For investors, this translates to new opportunities in multi-family housing projects. Areas with upcoming zoning reforms might see a surge in new projects, potentially driving up property values. However, investors should be wary of the timeline and political feasibility of such reforms, as they can vary widely across different jurisdictions.
Moreover, the mention of missing households — families doubling up due to costs — suggests latent demand that could be unleashed if more affordable housing becomes available. This latent demand can drive a robust long-term investment thesis for the housing sector.
The growing housing shortage is the primary reason for the affordability crisis
- From 2021 to 2022, the
U.S. housing shortage grew to 4.5 million homes, up from 4.3 million. - In 2022, the number of
U.S. families increased by 1.8 million, while only 1.4 million housing units were built. - Those who live in markets with stricter land-use regulations are less likely to be able to afford the mortgage payment on a typical home.
At its core, the housing market is driven by supply and demand. When the number of people who want a home increases faster than the number of homes available, prices go up. This balance reached a tipping point when the Great Recession ushered in a decade of underbuilding and millennials — the biggest generation in
"The simple fact is there are not enough homes in this country, and that's pushing homeownership out of reach for too many families," said Orphe Divounguy, senior economist at Zillow. "The affordability crisis extends to renters as well, with nearly half of renter households being cost burdened. Filling the housing shortage is the long-term answer to making housing more affordable. We are in a big hole, and it is going to take more than the status quo to dig ourselves out of it."
Across the country in 2022, there were roughly 8.09 million "missing households" — individuals or families living with nonrelatives. Compare that to 3.55 million housing units that were available for rent or for sale, and there is a housing shortage of more than 4.5 million.
The pandemic-era housing frenzy sparked a construction boom, but thus far, that boom has fallen short. In 2022, 1.4 million homes were built — at the time, the best year for home construction since the early stages of the Great Recession. However, the number of
One indicator of housing affordability is how strict a region's land-use rules are, new Zillow research shows. Those who live in highly regulated housing markets, as defined by the Wharton Residential Land Use Regulatory Index, are less likely to be able to afford the mortgage payment on a typical home in their metro, even in markets with higher-than-average incomes. This is because housing supply persistently falls short.
What's ahead
According to the
Reforming zoning rules to allow for more density is key for more homes to be built. Experts overwhelmingly agree that relaxing zoning laws is one of the best ways to improve affordability, and these types of measures have broad support among homeowners and renters. Even adding a modest amount of density in the country's biggest markets could create millions of new homes.
More steps in the right direction include eliminating or reducing parking requirements and minimizing delays in approval of building permits.
Metro Area* | Housing | Change in Housing | Change in Housing | Share of Non-Homeowner |
4,540,773 | 256,847 | 6.0 % | 15.1 % | |
389,924 | 13,548 | 3.6 % | 9.3 % | |
336,728 | 2,866 | 0.9 % | 2.8 % | |
97,379 | 9,946 | 11.4 % | 22.0 % | |
48,150 | 528 | 1.1 % | 14.5 % | |
20,028 | 3,631 | 22.1 % | 18.5 % | |
132,380 | -1,591 | -1.2 % | 13.0 % | |
72,584 | 7,795 | 12.0 % | 17.2 % | |
66,944 | 6,887 | 11.5 % | 9.2 % | |
65,543 | 2,076 | 3.3 % | 13.7 % | |
154,985 | 3,220 | 2.1 % | 7.0 % | |
93,984 | 6,988 | 8.0 % | 6.8 % | |
151,491 | -10,090 | -6.2 % | 3.7 % | |
76,988 | 4,634 | 6.4 % | 5.5 % | |
34,772 | -387 | -1.1 % | 23.1 % | |
107,897 | -961 | -0.9 % | 5.5 % | |
77,560 | 965 | 1.3 % | 12.0 % | |
93,939 | -555 | -0.6 % | 2.6 % | |
31,342 | 3,255 | 11.6 % | 10.8 % | |
70,197 | 504 | 0.7 % | 5.1 % | |
36,808 | 2,681 | 7.9 % | 16.0 % | |
14,824 | 1,647 | 12.5 % | 22.6 % | |
21,528 | 6,173 | 40.2 % | 11.1 % | |
18,494 | 689 | 3.9 % | 12.8 % | |
15,778 | 1,141 | 7.8 % | 15.3 % | |
72,284 | -4,433 | -5.8 % | 5.1 % | |
62,724 | -1,025 | -1.6 % | 4.9 % | |
15,632 | -1,462 | -8.6 % | 25.6 % | |
32,281 | 1,249 | 4.0 % | 18.2 % | |
61,332 | 4,587 | 8.1 % | 7.3 % | |
29,075 | 2,619 | 9.9 % | 8.4 % | |
27,579 | 1,219 | 4.6 % | 19.5 % | |
34,979 | 1,580 | 4.7 % | 17.9 % | |
14,675 | 468 | 3.3 % | 18.3 % | |
15,383 | 1,763 | 12.9 % | 22.4 % | |
57,556 | -3,339 | -5.5 % | 2.7 % | |
35,985 | 1,076 | 3.1 % | 7.2 % | |
18,843 | 1,254 | 7.1 % | 15.9 % | |
26,473 | 3,867 | 17.1 % | 7.7 % | |
14,250 | -123 | -0.9 % | 11.8 % | |
14,906 | 2,144 | 16.8 % | 14.4 % | |
13,970 | 2,301 | 19.7 % | 22.5 % | |
11,731 | -5,245 | -30.9 % | 9.9 % | |
3,350 | 252 | 8.1 % | 20.6 % | |
16,363 | 974 | 6.3 % | 15.0 % | |
9,963 | 1,912 | 23.7 % | 20.0 % | |
4,204 | 1,192 | 39.6 % | 16.4 % | |
29,955 | 1,857 | 6.6 % | 3.8 % | |
13,222 | -223 | -1.7 % | 18.1 % | |
15,201 | 1,860 | 13.9 % | 17.1 % | |
4,041 | 804 | 24.8 % | 17.6 % |
* | Table ordered by market size |
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1 The housing shortage is defined as the difference between the number of families that were likely to be seeking their own home and the number of homes that were available for rent or sale. Families in this case are defined as sets of individuals who are related within each household. The number of families that 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
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SOURCE Zillow
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