Why America has a Housing Shortage

AUSTIN – (By Dale King, Realty News Report) – The task of finding, then buying a comfortable and affordable home often involves dealing with financial and emotional hurdles like high upfront costs (down payment, closing costs), making critical decisions and possibly overlooking hidden maintenance and tax issues.

But a complication no amount of money or mental focus can overcome is the distress created by insufficient home inventory. Real estate professionals estimate the dearth of available housing on the market at levels as high as four million units. And as 2025 ended, an analysis by Realtor.com said the gap is even larger.

The website’s analysis, dubbed the “2026 Housing Supply Gap Report,” says the U.S. residential inventory gap grew to an estimated 4.03 million homes in 2025, up from 3.8 million in 2024 as new construction again fell short of sufficient home construction and pent-up demand from younger households held steady.

“Even when annual construction and household formation are roughly balanced, the market is still digging out from more than a decade of underbuilding,” said Danielle Hale, chief economist at Realtor.com. “A supply gap exceeding four million homes underscores how deeply rooted the shortage has become. Without a sustained and targeted increase in housing supply, particularly in areas with strong job growth and persistent demand, affordability challenges will continue to sideline many would-be buyers.”

In 2025, roughly 1.41 million households were created nationally while the number of housing starts registered 1.36 million. While this shortfall of roughly 50,000 residential units may not seem overly dire, it comes at a time when more than a decade of underbuilding has constrained supply, fueled home price growth and pushed homeownership further out of reach, particularly for younger Americans.

2025 marks the third-largest annual deficit since 2012, says the report, trailing only 2020 and 2023. Although the largest single-year gap occurred in 2020 during pandemic-related housing market disruptions, recent deficits reflect more persistent imbalances between supply and demand and highlight the difficulty of making sustained advancement against this breach.

Young households ‘missing’

The supply gap report finds that 1.82 million Millennial and Gen Z households were “missing” in 2025, the highest number in four years. Among 18- to 44-year-olds, the acceptance rates of leadership in finding households declined over the past decade as high housing costs and limited supply delayed movement of young folks into independent living. The segment of young adults living with parents was, on average, 2.7 percentage points higher by age than during the 2010–2014 reporting period.

Affordability is still a key barrier. Last year, the minimum recommended income to purchase a median-priced starter home was around $86,000, about $8,000 lower than the prior year, largely due to improved mortgage rates.

However, that threshold remains above the total annual income for many younger households. The median down payment reached $30,400, about 14.4% of the purchase price. It would take a median-income household seven years to save for a typical down payment at today’s savings rates.

Because the housing market includes both renters and homeowners, expanding affordable rental supply can help ease some of the aforementioned constraints. Renting remains more affordable than purchasing a starter home in 49 of the 50 largest U.S. metro areas, reinforcing leased units as a key pathway to independent household formation.

Regional gaps persist

Housing supply conditions vary significantly by region, the report states. The South carries the largest total deficit at 1.62 million homes, followed by the Northeast at 952,000, the Midwest at 865,000 and the West at 660,000.

However, when measured against cumulative construction since 2012, the Northeast faces the most acute shortage, followed by the Midwest, the South and the West.

The Northeast was also the only region to see improvement in both its missing young households and overall supply gap last year — attributed to housing starts reaching their highest level since 2015. Even so, the region remains the most supply-restrained region.

Construction Faces Headwinds

About 1.5 million homes were completed in 2025, a level that seems elevated by historical standards but is actually below 2024’s pace. Single-family completions were essentially flat year-over- year while multifamily completions dropped.

Total housing starts were relatively stable overall, though groundbreakings for single-family dwellings fell to roughly 940,000, the lowest level since 2019. Multifamily launchings rose to 415,000.

Builders continued to face structural challenges, including zoning restrictions, permitting hurdles, labor shortages and elevated materials costs. Although the share of new home sales considered affordable rose from 45% in 2024 to 47% in 2025 and new home prices were steady year over year in the fourth quarter, affordability constraints hung in and limited buyer activity.

Build, baby, build

Significantly closing the housing supply gap will require sustained increases in construction and a focus on building where demand is strongest, Realtor.com’s report states. Expanding access to affordable housing supply remains a key element to restoring market balance and ensuring future generations have a realistic pathway to homeownership.

“While construction levels remain elevated compared with historical norms, they are not yet high enough, or targeted enough, to meaningfully close the gap,” says Hannah Jones, senior economic research analyst at Realtor.com. “The fact that it would take roughly seven years to eliminate the deficit even under an optimistic building scenario highlights just how significant and persistent this shortage has become.”

Realtor.com’s “Let America Build” campaign continues to underscore the urgent need to expand housing supply through policy and regulatory reform.

Launched in 2025, the program calls on lawmakers, builders, advocates and communities to remove red tape, modernize zoning and streamline permitting to accelerate construction where needed most.

Photo: CALpix