The Worsening Housing Supply Shortage in the U.S.

Newly released data and analysis from several sources illustrate a major obstacle to a fully healthy housing market in the United States: the nation is not building nearly enough new residential units. The serious shortage of new supply is bottling up housing demand and pushing home prices and apartment rents well beyond what a growing number of households can afford. While lower-income households have the most severe housing affordability needs, a growing share of moderate-income families—especially those in larger cities—face serious challenges as well.

A biennial report from the federal government titled The Components of Inventory Change found that the nation’s housing stock increased by a net 270,000 units between 2011 and 2013—the slowest growth measured by the survey over the past decade, which included the worst years of the Great Recession. The report concluded: “Despite the gradually improving economy, there were large declines in both new construction and net additions to the housing stock during the 2011–2013 period compared to the 2007–2009 period.”

A recent Freddie Mac report noted that in 2015 the total number of housing starts—single-family and multifamily—was 30 percent below the average between 1970 and 2007. The Washington, D.C.–based National Association of Realtors estimates that the country’s supply of for-sale and rental units combined is 3 million units short of current demand.

Not surprisingly, millions of Americans cannot find an affordable home to buy or an apartment to rent. A survey conducted by the D.C.-based National Association of Home Builders (NAHB) found that 59 percent of respondents said they could and would spend no more than $249,000 on a new home, but only 35 percent of new homes started in 2015 were at or below that price. The online real estate service Trulia recently reported that the number of starter and trade-up homes available in the 100 largest U.S. metropolitan areas has plunged by more than 40 percent since 2012.

Yes, apartment development has experienced a historic boom: multifamily construction volume nearly doubled between 2010 and 2012, and increased another one-third between 2012 and 2014, according to a new report by the Research Institute for Housing America. New multifamily completions in the United States topped 310,000 last year, the highest level in at least 25 years, according to the National Multifamily Housing Council, and 1 million more apartments could come on line in the next three years, according to projections by the market research firm Axiometrics.

However, most new apartments and single-family homes are aimed at the top of the market. The median asking rent for a new apartment today exceeds $1,300, which is unaffordable for roughly half the renter households in the United States (based on a standard of affordability of 30 percent of income devoted to rent). The average price of new homes for sale in 2015 was $351,000—a 40 percent increase from 2009.

In the current cycle, both single-family homebuilders and multifamily apartment developers have focused largely on the most affluent buyers and renters in part because there have been robust demand and better margins for serving that market segment in light of rising land and labor costs. Also pushing production to the high end of the price scale are local regulations. A new NAHB study indicates that regulatory fees for new construction have jumped nearly 30 percent over the past five years to more than $80,000 per home; these fees now account for a quarter of a new home’s price, on average. Increasingly, it seems, the local regulatory environment is a headwind for a housing market that simply is not producing enough residential units to meet the nation’s needs.