Bad News for Homebuyers: “We are in a Big Hole”

New housing units are not keeping up with the growth of U.S. families, leaving the nation with a shortage of homes that is growing year over year and driving the housing affordability crisis.

Even with a pandemic-related boost in construction, the U.S. housing shortage increased to 4.5 million homes in 2022, up from a shortage of 4.3 million homes in 2021, according to an analysis by Zillow. The trend is a symptom of basic supply and demand. U.S. families grew by 1.8 million while new houses only increased by 1.4 million.

“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 and addressing the more than 8 million “missing households” reported in 2022, which includes individuals or families living with nonrelatives at a time when only 3.55 million housing units were available for rent or sale.

“We are in a big hole, and it is going to take more than the status quote to dig ourselves out of it,” Divounguy said.

Although the nation experienced its strongest year for home completions since 2007 last year – with 1.45 million new homes built according to the U.S. Census Bureau – it is still not enough to keep up with demand, much less begin to chip away at the existing housing shortage.

Among the largest 50 metropolitan areas, the worst housing shortages were in coastal markets, with five of the 10 worst in California. Boston, Sacramento, Portland, San Diego, San Francisco, San Jose, Seattle, Minneapolis, Los Angeles and Austin had the worst housing shortages in the country.

The trend was ushered in by a decade of underbuilding triggered by the Great Recession at a time when the biggest generation in U.S. history – millennials – were reaching the prime age for first-time home buying. This has resulted in worsening affordability that is now exacerbated by stubbornly high mortgage rates.

How strict a region’s land-use rules are also impacts housing affordability, with those who live in highly regulated housing markets being less likely to be able to afford the mortgage payment on a typical home in their area. This is true even in markets with higher-than-average incomes and is likely due to housing supply persistently falling short, said Zillow. Reforming zoning rules to allow for higher density could be key to improving affordability as could reducing parking requirements and minimizing delays in building permit approvals, the company said.