According to a new report from Zillow, a significant lack of new, affordable housing is the fuel at the crux of the ongoing affordability crisis. In particular, this is impacting Millennials and Gen Z who are at the prime home-buying time of their lives and are looking to enter the market for the first time and who probably are not bringing any equity towards a mortgage besides a down payment.
This deficit of new, affordable homes underscores the need for new governmental policies and investment options—that can and will—boost construction opportunities.
This lack of affordable options for young singles and families has created what are called “missing” households, which is defined as potential homeowner who lives with family members in owned or rental housing.
According to Zillow in 2021, there was nearly 8 million missing households compared to 3.7 million dwellings units available for rent or sale, resulting in a deficit of 4.3 million homes.
“The U.S. housing market is like a high-stakes version of the game musical chairs,” said Orphe Divounguy, senior economist at Zillow. “There are simply not enough homes for millions of people. Unless we address the shortage of smaller, more-affordable, starter-type homes, we risk leaving families without a seat — and it will only get worse over time.”
Zillow continued their report by saying that for each of the 3.7 million units that were available for sale or rent in 2021, there were more than two potential households in need of their own homes. This means even if every missing household was willing and able to move into their own home, 4.3 million households would have been left without a place to move to.
Another statistic discovered by Zillow is that the bulk of families that are living together have consistently lower combined incomes, which highlights the need for smaller, more affordable housing. Of the families that are doubling up, 68% had an annual income of $35,000 or less.
This mismatch between those who need homes and affordable housing is exacerbated by expensive markets, specifically in the high-cost costal areas, and some other inland major metropolitan areas.
So what, if anything, be done about this issue? Zillow says construction activity has been declining relative to the economy as a whole since the 1960s, with land-use restrictions, building approval delays, and stunted construction sector growth all contributing to the lack of new home construction across the country. Policymakers should explore ways to boost production and overall growth of the construction sector to ensure housing supply can catch up to demand.
In addition, governmental changes in zoning laws are critical to easing housing costs. According to public polling conducted by Zillow, four-in-five adults support allowing more, smaller home types to be built in their own neighborhoods. Researchers also suggest that speeding up building permitting, eliminating parking requirements, tax incentives to rehabilitate underutilized housing stock, and expanding affordable housing trust funds could all help ease the shortfall in new construction.
Click here to view the report in its entirety.
