US Housing Market Shortage: An Analysis of the Situation

US Housing Market Shortage: An Analysis of the Situation


The United States is facing a severe housing shortage, according to a recent report from The report states that the US has been under-building homes for over a decade, and this trend has created a significant gap between single-family home constructions and household formations. In the decade between 2012 and 2022, 15.6 million households were formed, while only 13.3 million housing units were started, and 11.9 million were completed. This includes 9.03 million single-family homes and 4.2 million multi-family homes, of which only 8.5 million single-family homes and 3.4 million multi-family homes have been completed. The gap between single-family home constructions and household formations grew to 6.5 million homes between 2012 and 2022. However, this gap is cut to 2.3 million homes when multi-family construction is included.


Despite the increase in multi-family buildings, a supply gap persists, and the trend of underbuilding can be seen in vacancy rates, both for homeowners and rentals. The homeowner vacancy dropped from 2% in 2012 to 0.8% by the end of 2022. At the same time, rental vacancy rates plummeted, reaching a low of 5.6% at the end of 2021 and again in the early part of 2022, before rising slightly to 5.8% at the end of 2022.


Spring homebuying and selling season is here, and many people are wondering what needs to happen to close the housing gap. This article will explore the situation in more detail and discuss some possible solutions.


The Importance of Single-Family Homes


While multi-family housing can ease ongoing housing affordability challenges by providing more supply for renters, single-family homes are essential for many families. They provide more space, privacy, and stability. However, the gap between single-family housing starts and household formations grew from 5.5 million at the end of 2021 to 6.5 million at the end of 2022, as household formations rose and single-family home construction dropped.


The decrease in single-family home constructions in the second half of 2022 was due to the surge in mortgage rates, as part of the Federal Reserve’s historic campaign to rein in inflation. The housing market felt the impact of the ascent of mortgage rates, red-hot buyer demand cooled, and builders started to pull back on single-family home starts.


Multi-Family Building Helps, but Household Formation Is Outpacing Building


Multi-family buildings can be a solution to the housing gap, but it takes longer to complete than single-family homes, with an average completion time of 15 months. Multi-family properties made up, on average, 32% of housing starts between 2012 and 2021, but grew to 35% in 2022 as mortgage rates spiked, and prices in the purchase market led to a pullback in demand for single-family homes. This led builders to pivot to the multi-family market, which is dominated by rentals. Nearly all (95%) of multi-family units started through the first three quarters of 2022 were intended to be used as rentals.


However, even with the increase in multi-family buildings, household formation is still outpacing buildings. The United States saw the highest level of yearly household formations in the last decade in 2022, with 2.06 million new households, outpacing housing starts. This widened the gap between total housing starts and household formations from 1.8 million housing units between 2012 and 2021 to 2.3 million units at the end of 2022.


The impact of the housing shortage on the economy


The housing shortage in the US has far-reaching impacts on the economy. For one, it leads to rising home prices, which make homeownership less affordable for many Americans. This, in turn, has a domino effect on the economy, as homeownership is a significant driver of consumer spending.


When people are unable to buy homes, they have less disposable income to spend on other things, such as cars, home furnishings, and other consumer goods. This, in turn, affects the demand for these goods, which can lead to a slowdown in economic growth.


Moreover, the housing shortage also puts pressure on the rental market, as many people who are unable to buy homes are forced to rent. This increased demand for rental housing drives up rents, making it more difficult for low- and middle-income families to find affordable housing.


Finally, the housing shortage can also have a negative impact on the construction industry, which is a significant contributor to the US economy. Without sufficient demand for new homes, builders may be forced to lay off workers, leading to job losses and reduced economic growth.


Policy solutions to address the housing shortage


To address the housing shortage, policymakers need to focus on several key areas. One is increasing the supply of affordable housing, particularly in areas with high demand. This could involve providing incentives for builders to construct more affordable homes, as well as increasing funding for affordable housing programs.


Another area where policymakers can make an impact is in addressing the regulatory barriers that can make it more difficult and expensive to build new homes. Streamlining the permitting process and reducing the costs associated with building new homes could help to incentivize builders to increase construction.


Finally, policymakers need to address the underlying economic and demographic factors driving the housing shortage, such as population growth, migration patterns, and changes in household formation. This could involve policies aimed at boosting economic growth and job creation, as well as measures to incentivize people to move to areas with more affordable housing.


What Also Needs to Happen


Addressing zoning laws and building codes


Another way to increase the housing supply is to address zoning laws and building codes. Zoning laws are regulations that determine how the land can be used and what can be built on it. In many areas, zoning laws restrict the construction of multi-family housing, such as apartments or townhomes, in favor of single-family homes.


Similarly, building codes can be overly restrictive, making it difficult and expensive to construct new homes. By addressing these regulations and creating more flexible rules, developers can build more units on a given piece of land, increasing the supply of housing.


Encouraging affordable housing development


Another strategy to close the housing gap is to encourage the development of affordable housing. In many areas, affordable housing is in short supply, which can make it difficult for low-income households to find suitable housing.


There are a few ways to encourage the development of affordable housing. One is to offer incentives to developers who build affordable units, such as tax breaks or subsidies. Another is to require developers to include a certain percentage of affordable units in their projects in exchange for building permits or other benefits.


Expanding access to financing


Finally, expanding access to financing can help more people afford to buy homes, which in turn can increase demand for new construction. This can include offering low-interest loans or down payment assistance programs to first-time homebuyers or providing grants to low-income households to help them cover the cost of housing.


Overall, closing the housing gap will require a multi-pronged approach that addresses both supply and demand issues. By increasing the housing supply through the construction of new homes and the relaxation of zoning and building regulations, and by expanding access to financing and encouraging the development of affordable housing, we can ensure that everyone has access to safe, affordable, and adequate housing.



Article Provided by Charles Sells – Charles Sells began his career investing in tax liens at the age of 23.Like many of us, he was enticed by the simplicity and profitability often conveyed in popular coaching programs and weekend workshops. However, experience taught him that success required more than a simple snap of the fingers. So, at 26, Charles kicked the pitchmen to the curb and started his own business, helping investors discover realistic profits investing in distressed real estate. The model was simple: use his growing knowledge, integrity and tenacity to help others grow alongside him, in experience and in profits. One investor at a time, Charles has built a reputable business helping individuals invest passively in everything from tax liens to the ever-so-popular fix-and-flip. Fast-forward 20 years and Strategic Passive Investments has transacted hundreds of millions of dollars in distressed real estate investments on behalf of nearly 1,000 investors worldwide. Charles and his team at SPI have taken the stress out of investing in distressed real estate, by enabling investors to have their individual investments remain in their name and their control, retaining 100% ownership, with Charles and The SPI team at the helm to make certain those investments remain profitable.