Housing Shortage Hits Younger Generations Hard

Home completions are at the highest levels in almost 20 years. And yet there was a gap of 3.7 million homes between the demand and supply of housing, leaving hundreds of thousands – especially younger Americans — out in the cold.            According to a study by Realtor.com, the shortage in housing is partly due to a factor it calls “the headship rate” – the rate at which the population forms households. It has fallen for the 18-44 year age group for more than 10 years. “By comparing today’s millennial and Gen Z headship rates to those of similarly aged Americans in the early to mid-2010s, we can estimate “pent-up” housing demand and paint a more complete picture of the housing supply gap,” the study said.           In 2014, there were 685,000 households in the 18-44 year age group with pent-up demand; the total shortage for all households was 745,000. By 2024, there were 1.63 million households in this millennial-Gen Z age group experiencing pent-up demand, while the total housing deficit stood at 3.7 million.            The inadequate supply of housing occurred even though 1.36 million homes began construction in 2024, including the second-highest level of single-family housing since 2007. However, multifamily starts – especially in the high-density segment – fell to their lowest level in seven years. That brought total housing starts to their lowest level since 2020. Homeowner vacancy stood at 1.1% in 4Q 2024, well below the historic norm.

Cost is a primary factor contributing to the housing gap. To purchase a starter home at today’s prices and mortgage rates, the minimum recommended income would be about $94,000 – a level well above what younger households would likely earn, the report found. For some, renting may be the answer. “It remains more affordable to rent than to buy a starter home in 48 of the 50 largest U.S. metro areas,” the report noted.