The U.S. is now short 4.5 million homes as the housing deficit grows

PRNewswire 18-Jun-2024 8:03 AM

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.

SEATTLE, June 18, 2024 /PRNewswire/ -- Despite a pandemic construction boom, the U.S housing shortage grew to 4.5 million homes in 2022, up from 4.3 million the year before, according to a new analysis from Zillow®.¹ This deepening housing deficit is the root cause of the housing affordability crisis.

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 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.

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 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.

About Zillow Group:
Zillow Group, Inc. (Nasdaq: Z and ZG) is reimagining real estate to make home a reality for more and more people. As the most visited real estate website in the United States, Zillow and its affiliates help people find and get the home they want by connecting them with digital solutions, dedicated partners and agents, and easier buying, selling, financing and renting experiences.

Zillow Group's affiliates, subsidiaries and brands include Zillow®, Zillow Premier Agent®, Zillow Home Loans?, Trulia®, Out East®, StreetEasy®, HotPads®, ShowingTime+?, Spruce® and Follow Up Boss®.

All marks herein are owned by MFTB Holdco, Inc., a Zillow affiliate. Zillow Home Loans, LLC is an Equal Housing Lender, NMLS #10287 (www.nmlsconsumeraccess.org). © 2024 MFTB Holdco, Inc., a Zillow affiliate.

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 USA using the FAMUNIT variable and the appropriate weights.

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SOURCE Zillow