Why is the U.S. Housing Market Short By Nearly 4 Million Homes?

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• The supply of U.S. homes undershot demand by 3.8 million homes in 2024, according to a Realtor.com report.

• The report showed that builders would take 7.5 years to catch up with demand as inventory struggles pressure home affordability.

• Zoning rules were cited as a major issue in undercutting new home construction, especially single-family housing rules that limited the construction of more affordable housing.

• Economists debated how to address making improvements to zoning, as some changes led to higher long-term costs.

Home builders made a small dent in the number of houses needed to meet demand, but the U.S. housing market supply remains short by millions of homes.

The U.S. housing market needs as many as 3.8 million more homes to meet the demands of homebuyers in 2024, according to data from Realtor.com, extending the trend of limited home inventory that has put pressure on home affordability.

It’s the first year since 2016 that home construction outpaced new household formation, showing that builders are beginning to catch up to the ongoing housing shortage. However, Realtor.com economists Hannah Jones and Danielle Hale estimated it would take more than seven years for builders to construct enough homes to close the gap between demand at 2024’s rate.

“We’re still years away from a normal, healthy housing situation,” said Robert Frick, corporate economist at Navy Federal Credit Union

There are several factors that have led to the housing supply falling short.

Following the 2008 financial crisis that was spurred by a plunge in the housing market, homebuyer demand dropped, leaving builders to construct fewer houses, Frick said.  Now that housing demand is rising, builders face new obstacles, including local zoning rules that can discourage the development of more affordable housing options.

One frequent policy target is single-family zoning, which covers about 75% of U.S. residential land but can often prohibit the construction of multifamily units or other more affordable options.

Some economists oppose exclusive single-family zoning, arguing that builders will construct more affordable housing if permitted. Some proposals include allowing the construction of accessory dwelling units on properties in single-family zoning areas or including duplexes or smaller apartment buildings in zoning rules.

However, other researchers say making these zoning changes may not lead to more affordable outcomes. The Boston-based Pioneer Institute found that while some zoning changes in Massachusetts led to more affordable housing options, the effects could affect long-term, broad-based affordability.

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“Except in Boston and Cambridge, most of these policies have produced a paltry amount of affordable housing,” said Andrew Mikula, a Pioneer Institute researcher. “It’s extremely difficult to find a scalable way to align the math behind real estate development with programmatic mandates for affordable housing.”

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