Despite the construction boom that happened shortly after pandemic restrictions began being lifted—that has since slowed—the U.S. housing shortage grew to a 4.5-million-unit deficit, up from 4.3 million units in 2023, according to a new analysis from the real estate firm Zillow.
The deepening housing deficit is the root cause of the housing affordability crisis
According to Zillow, 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 inevitably go up.
This balance of available homes to homeseekers reached a tipping point when the Great Recession hit in 2007-2009—a balance which reached a tipping point when the recession ushered in a decade of underbuilding.
This has had lasting consequences. Millennials—the biggest generation in U.S. history—reaching the prime age for first-time home buying. The result has been worsening affordability, now exacerbated by stubbornly high mortgage rates.
“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 U.S. families increased by 1.8 million that year, meaning the country did not even build enough to make a place for the new families, let alone begin chipping away at the deficit that has hampered housing affordability for more than a decade.
The newest Zillow research found that one indicator of housing affordability is how strict a region’s land-use rules are 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 U.S. Census Bureau, roughly 1.45 million homes were completed in 2023. The increase over 2022 is a sign of progress, but much more needs to be done.
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.
Click here to see Zillow’s research in its entirety, including a list of numbers from the U.S. Census Bureau.
