Housing Shortage: Real or Something Else?

The prevailing narrative of a U.S. housing shortage has been widely accepted by policymakers, media, and industry stakeholders. However, a closer examination reveals that this “shortage” may be more a product of systemic and other issues than an actual deficit in housing units. This article delves into the evidence suggesting that the housing shortage is, in many respects, a manufactured phenomenon.

Sufficient Housing Stock Exists

Contrary to popular belief, data indicates that the U.S. has an ample supply of housing units. A study by the University of Kansas found that from 2000 to 2020, housing production exceeded household growth by 3.3 million units. Only a small fraction of metropolitan and micropolitan areas experienced actual shortages during this period.

Furthermore, vacancy rates have remained relatively stable. In 2020, the national vacancy rate was 9.7%, translating to nearly 14 million vacant units. This suggests that the issue isn’t the quantity of housing but rather its distribution and affordability.

Here’s how the numbers break down:

Household Growth vs. Housing Starts (2025–2035)

• Projected Household Growth:
  According to the Harvard Joint Center for Housing Studies, the U.S. is expected to add about 860,000 households per year, or 8.6 million total from 2025 to 2035.
• Housing Starts:
  In recent years, the U.S. has seen 1.5 million or more new housing starts per year (2021–2023 figures from the U.S. Census Bureau support this trend). This translates to 15 million new housing units over the same 10-year period—far exceeding the 8.6 million new households.

So Why Is There Still Talk of a Shortage?

Despite these raw numbers, several key issues distort the interpretation:

1. Location Mismatch:
   New construction isn’t always occurring where demand is greatest. For instance, more homes may be built in the South or Midwest, while high-demand urban areas on the coasts face construction restrictions due to zoning and regulatory hurdles.
2. Unit Type Mismatch:
   Many new units are luxury apartments or single-family homes, often unaffordable to the people who need housing most. The affordable housing supply remains far below demand.
3. Vacancy and Second Homes:
   Millions of housing units (over 14 million as of the 2020 census) are vacant, often because they are:
   • In declining rural or post-industrial regions,
   • Used as second homes or short-term rentals (e.g., Airbnb),
   • Uninhabitable due to disrepair.
4. Investor Activity:
   Institutional investors have bought a large share of homes in some markets, limiting access to first-time buyers. This has created “functional shortages” in starter home segments even when overall supply exists.
5. Institutional investors, such as real estate investment trusts (REITs) and private equity firms, have been increasing their presence in the single-family rental (SFR) market. As of 2022, estimates suggest that institutional investors owned between 450,000 and 574,000 single-family rental homes nationwide. This represents approximately 3% to 5% of the total SFR market. Projections indicate that by 2030, institutional ownership could rise to 40% of the SFR market, equating to about 7.6 million homes.

There is no raw numeric housing shortage in the U.S. if you compare housing unit creation to household formation, both historically AND projected. The supposed shortage arises from distributional, regulatory, and affordability factors—not from a failure to build enough units overall. And, likely, a deliberate effort to drive up prices motivated only by greed.

Affordability, Not Availability, Is the Core Issue

The crux of the housing crisis lies in affordability. While housing units are available, they are often priced beyond the reach of low- and middle-income households. The same University of Kansas study highlighted that nearly all metropolitan areas lack sufficient affordable rental units for very low-income households.

This mismatch between housing costs and household incomes underscores that the problem is not a sheer lack of housing but the inaccessibility of existing housing to those who need it most.

Regulatory Constraints Inflate Housing Costs

Zoning laws and land-use regulations have significantly contributed to rising housing costs. In areas with stringent regulations, the cost of land—referred to as the “zoning tax”—can add substantial premiums to housing prices. For instance, in San Francisco, this “zoning tax” has been estimated at over $400,000 per home.

These regulatory barriers limit the development of new housing, particularly affordable units, thereby exacerbating the affordability crisis.

Institutional Investors and Market Dynamics

The increasing involvement of institutional investors in the housing market has further distorted housing availability and affordability. In 2021, institutional investors accounted for 16% of home purchases in Ohio, raising concerns about reduced homeownership opportunities and escalating prices.

The consolidation of housing by large investors can lead to reduced competition, higher rents, and diminished access to affordable housing for average consumers.

Misinterpretation of Market Indicators

The term “housing shortage” is often used without a clear definition, leading to misconceptions. Economist Paul Mueller argues that high prices alone do not indicate a shortage. A true shortage exists when goods are unavailable at any price, not merely when they are expensive.

By this definition, the U.S. does not have a housing shortage but rather a distribution and affordability problem.

Policy Implications and the Manufactured Narrative

The perpetuation of the housing shortage narrative serves certain interests, particularly those of developers and investors who benefit from policies aimed at increasing housing supply. However, without addressing the underlying issues of affordability and equitable distribution, simply building more housing may not resolve the crisis.

Policymakers should focus on measures that enhance affordability, such as revising zoning laws, regulating institutional investment in housing, and providing targeted subsidies for low-income households.

Conclusion

The evidence suggests that the U.S. housing shortage is less about an absolute shortage of units and more about systemic issues related to affordability, regulatory constraints, and market dynamics, and corporate greed. Addressing these root causes is essential for developing effective and equitable housing policies.