Why is there a shortage of nearly 4 million houses in the U.S. Housing market?

Takeaways

• A Realtor.com report states that the supply of U.S. housing will be 3.8 million units below demand in 2024.
• The report revealed that builders will take 7.5 to catch up with the demand as inventory issues put pressure on affordability.
• Zoning rules, particularly those that limit the construction and affordability of single-family homes, were cited by many as a major obstacle to new home construction.
• Economists discussed how to improve zoning because some changes lead to higher costs in the long run. 

The number of homes needed to meet the demand has been reduced by a small amount, but the housing market in the United States is still short of millions of homes.

According to data from Realtor.com the U.S. housing industry needs up to 3.8 million additional homes by 2024 to meet the demand of homebuyers. This trend of limited inventory has put pressure on the affordability of home.

The housing shortage is beginning to be addressed by builders. Realtor.com economists Hannah Jones & Danielle Hale estimate that it will take builders more than seven years to build enough homes to meet the demand in 2024.

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

Zoning rules create challenges for builders to meet demand

The housing shortage is due to a number of factors.

Frick explained that after the 2008 financial crisis, which was triggered by a collapse in the housing market and a drop in homebuyer demand, builders were forced to build fewer homes.  Frick said that now that housing demand has increased, builders are facing new obstacles. These include local zoning laws that can discourage the creation of more affordable housing options. 

The single-family zone, which covers 75% or the U.S. residential land, can often be a policy target. It can prevent the construction multifamily units and other more affordable alternatives.

Some economists argue that zoning restrictions on single-family homes are unfair, as they believe builders will build more affordable housing if allowed. Some proposals include allowing accessory dwelling units to be built on properties within single-family zones or including duplexes and smaller apartment buildings as part of zoning regulations.

Other researchers, however, say that making these zoning modifications may not lead to more affordability. The Boston-based Pioneer Institute concluded that while some zoning reforms in Massachusetts resulted in more affordable housing, the effects may affect long-term affordability.

“Except in Boston or Cambridge, most of these policy have produced a paltry number of affordable housing,” said Andrew Mikula a Pioneer Institute researcher. “It is extremely difficult to find an scalable way to align real estate development math with programmatic requirements for affordable housing.”