America faces a serious housing shortage, one that Moody’s estimates would take more than 2 million new homes to resolve.
But over at Goldman Sachs, analysts put the number at 3 million. Zillow’s estimate tops 4 million, while Brookings projects 5 million, and McKinsey says 8 million. Meanwhile, congressional Republicans insist the shortfall is closer to 20 million.
Then there are the economists who contend there’s no shortage at all.
The disparate projections reflect the challenge of quantifying the nation’s housing needs, a puzzle that rests on assumptions about how much a home should cost, how many people it should hold, and how big a footprint it should have.
With housing affordability a crucial political issue and increasingly out of reach for many Americans, determining the nation’s needs is not merely an academic exercise but is key to devising policies that will solve the problem.
Vacancy rates and missing households
The U.S. has 146 million homes, Census Bureau data show. Of those, 8.1 million are “doubled up” households, meaning people are sharing space with non-relatives. Zillow’s housing estimate assumes most of those people would prefer having their own place. There also are 3.4 million vacant homes available to rent or buy, the real estate website says. So Zillow economists subtracted the number of available homes from the number of doubled-up households and concluded that the nation needs 4.7 million more homes.
Several analyses zeroed in on two questions: How many homes should be vacant, and how many consumers have delayed striking out on their own because of the cost.
Though it might seem counterintuitive, a healthy housing market needs vacancies. An empty property could signal it’s between tenants or buyers, for example, or under renovation. Or it could mean the owner is splitting time between properties; according to the National Association of Home Builders, more than 6 million homes — about 1 in 20 — are secondary residences.
What constitutes a healthy level of vacancies is harder to define, as experts put it anywhere from 3 percent to 13 percent. After home construction cratered following the 2008 housing crash, vacancy rates slumped to the lowest level in nearly two decades, falling to 5 percent of owner-occupied dwellings and less than 1 percent of rental units. They have yet to fully recover.
The optimal home number could be as simple as one for every household, plus a certain number of vacancies. But what if we don’t have an accurate count of households?
When housing costs are prohibitive, adult children tend to reside with their parents longer; in 2023, 18 percent of adults 25 to 34 were living in a parent’s home, compared with 8 percent in the 1970s, according to a Pew Research Center report.
For many economists, that suggests the equation should be: the number of existing households, plus the number of homes that should be vacant, plus the number of households that would naturally come into being if there was enough inventory to lower prices.
Yet different researchers using this framework still came up with different answers for the housing shortage.
Moody’s Analytics and PolicyMap say it would take 800,000 homes to reach the equilibrium of the U.S. housing market between 1985 and 2000. Add 1.2 million “pent up households,” those that haven’t formed yet, and the conclusion is the U.S. needs an additional 2 million homes.
Brookings’s calculation aims to get back to the 2006 vacancy rate of more than 12 percent, when it was near its historic peak. It used a complex statistical model to tease out how much of the decline in household formation since then is due to home prices instead of other factors, such as young people having trouble finding jobs or marrying later. As a result, it concluded the U.S. needed 4.9 million more houses.
Other analyses along these lines include Freddie Mac’s, which calls for 3.7 million more homes. Goldman Sachs analysts tried the “vacancies plus pent-up demand” approach, as well as a mathematical model to determine how many homes it would take to make ownership as affordable relative to income as it was in the 1990s. Both equations worked out to between 3 million and 4 million homes. McKinsey added up new households and vacancies, plus enough housing to address homelessness and replace overcrowded homes with more than one person to a bedroom, to get to 8.2 million.
Envisioning an unconstrained market
A 2022 congressional report took a different tack. Most analyses attempt to re-create some semblance of the housing market two, three or four decades ago. But Republicans on the Joint Economic Committee argued that the correct number is equal to the number of homes that developers would build had they had no regulatory constraints — no permitting or zoning rules that prohibit them from building what customers want.
The Republicans’ estimate relied on the reasoning that the value of the land should be about 20 percent of the home cost. Anything higher would mean the market is artificially constrained; land becomes pricier when it is harder to build something on it. To bring prices in line with that in every U.S. county, they concluded the home shortage stood at 20 million.
By their math, North Dakota and West Virginia have almost no housing shortage, while California is short 4.5 million homes. Eliminating zoning and building restrictions across the country’s hundreds of jurisdictions might be unfeasible, but they project that any substantial effort would lower prices. For example, they contend that building an additional 2.7 million homes could reduce prices enough to make ownership economically viable for nearly 5 million more consumers.
“If we relaxed all regulations that concerned supply in every single market in the United States, this is how many homes you would have … . I do think this is the right way to think about how many homes we should have,” said Kevin Corinth, an economist who co-authored the report while he was a Senate staffer and now works at the American Enterprise Institute, a libertarian think tank. “If you really want to bring down home prices to the point where people can actually afford them, you’re going to have to build a lot more houses than people are suggesting.”
Per capita spending
Housing analyst Kevin Erdmann did some eye-popping math recently. Adjusted for inflation, per capita spending on housing construction has been falling as a fraction of personal consumption, dropping 23 percent since 1990. If such spending held to 1990 levels, he said, the U.S. would have an additional 40 million houses. “Almost all professional estimates of the housing shortage are ridiculously low,” Erdmann, who has written two books about the housing market, wrote on his Substack.
He said the slowdown in construction spending indicates that people are living in smaller homes than they’d prefer because they had no choice, but he shies away from actually saying the country is 40 million homes short. Instead, based on aggressive assumptions about missing households and necessary vacancies, he says the country needs 15 million to 20 million.
Maybe there’s no shortage at all
Urban planning professors Kirk McClure and Alex Schwartz examined 900 U.S. metropolitan areas and found that only 19 had added more population than housing since 2000. Before the 2008 recession, they argued, developers built far too many houses, leaving room for under-building in some years since.
“Yes, we have a shortage of units in the low-income price points, but not overall,” McClure said. He contends it would be far less costly for the government to help poor households rent or buy existing units than to build new ones. “The best housing program right now would be an increase in the minimum wage. You get people up to $20 an hour and suddenly life gets better — we can’t build our way out of this problem.”
This view of the current housing supply transcends partisan lines, with some of the highest and the lowest estimates of the shortage coming from the right. Economists at the libertarian Cato Institute contend that housing production has kept up with population growth. Just because people want to live in big houses in expensive, densely populated areas, they assert, doesn’t mean there’s a shortage.
“A shortage is literally people don’t have anywhere to live. That’s not what we have,” Norbert Michel, one of the Cato writers, said in an interview.
In the end, the dispute doesn’t just come down to the choice of mathematical models, but varying interpretations of what a housing shortage even means.
“If I have a hard time finding an apartment in the area of Washington, D.C., that I like, I can still move to Maryland and find something,” Michel said. “The idea that I’m just completely shut out of all my options and I can’t find any place to live, that’s what a shortage evokes. And the data doesn’t support that.”
Erdmann views it differently: “There are 28-year-olds living with their parents that wouldn’t be if there were a house. If that’s not a shortage, I don’t know when you could use the word.”
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