Pandemic Construction Boom Fails to Close Growing Housing Gap in U.S., Zillow Reports

SEATTLE - Despite a surge in construction during the pandemic, the shortage of available homes in the U.S. continues to grow, with the issue more pronounced in certain major cities, according to a new report from Zillow.

Increasing Housing Shortage

Zillow's estimates indicate that the U.S. was short 4.5 million homes in 2022, up from 4.3 million in 2021. This growing deficit is identified as "the root cause" of the housing affordability crisis across America, as it puts upward pressure on home prices and rents.

Geographic Disparities

Zillow analyzed the 50 largest metropolitan areas and found that many of the worst housing shortages are in coastal cities. These areas often face geographic constraints and stringent building regulations that hinder new construction. Notably, five of the ten worst cities for housing shortages are in California.

Top 10 Cities with Worst Housing Shortages

Among the largest 50 metropolitan areas in the country, Zillow identified the top 10 cities with the worst housing shortages. These cities often experience high demand due to population growth and economic opportunities, exacerbating the housing shortage:

1. Boston

2. Sacramento

3. Portland

4. San Diego

5. San Francisco

6. San Jose

7. Seattle

8. Minneapolis

9. Los Angeles

10. Austin

Factors Contributing to Housing Shortages

The housing deficit is defined as the gap between the number of families likely seeking their own home and the number of homes available for rent or sale. Despite an increase in home construction, the shortage persists due to several factors:

• Population Growth: Regions attracting significant numbers of newcomers, such as Austin and Seattle, see worsening housing deficits in the short term.

• Underbuilding Post-Recession: The Great Recession led to a decade of underbuilding, with construction rates failing to keep up with demand.

• Pandemic-Era Housing Boom: The pandemic sparked a housing frenzy that led to a construction boom. In 2022, 1.4 million homes were built, marking "the best year for home construction" since the early stages of the Great Recession in the late 2000s. However, the number of U.S. families increased by 1.8 million that same year, meaning construction did not keep pace with family formation, let alone address the existing housing deficit.

Impact on Homeownership and Renters

"The simple fact is there are not enough homes in this country, and that's pushing homeownership out of reach for too many families," said Orphe Divounguy, senior economist at Zillow. "The affordability crisis extends to renters as well, with nearly half of renter households being cost-burdened. Filling the housing shortage is the long-term answer to making housing more affordable. We are in a big hole, and it is going to take more than the status quo to dig ourselves out of it."

Market Dynamics

The housing market operates on supply and demand principles. When the demand for homes outstrips supply, prices rise. The Great Recession resulted in "a decade of underbuilding," while Millennials, the largest generation in U.S. history, reached the prime age for first-time home buying. This has exacerbated home affordability issues, compounded by high mortgage rates.

Solutions and Outlook

Addressing the housing shortage requires more than maintaining the status quo. Long-term solutions include:

• Increased Funding for Affordable Housing: Government and private sector investment in affordable housing projects can help increase the supply of homes available to low- and middle-income families.

• Zoning Reforms: Updating zoning laws to allow for higher-density housing and mixed-use developments can create more housing options in urban areas.

• Incentives for Developers: Providing tax incentives or subsidies to developers who build affordable housing can encourage the construction of more homes that are within reach for average families.

• Support for Local Investors: Programs that support local investors in purchasing and renovating vacant properties can help bring more affordable homes to the market.

Role of Local Investors

Kurt Carlton, president and co-founder of New Western, a real estate investment company in Dallas, Texas, believes that small, local investors can play a crucial role in addressing the housing crisis. "We see a great opportunity in local investors and vacant homes to solve the housing crisis," Carlton told FOX Television Stations. "There is a movement happening with small local investors helping bring livable inventory back to the market at more affordable prices."

Local investors can purchase and renovate vacant homes, increasing the supply of livable housing and making homes available at lower prices than new builds. This approach not only revitalizes neighborhoods but also provides more affordable housing options.

Real Estate Market Trends

Zillow reported that the Dallas area saw over 20,500 new builds last year, with nearly 12,000 homes being flipped. "In some of our markets, flippers are even outpacing builders in bringing livable inventory to market, and in many other markets, they aren't far behind," Carlton noted.

Advice for Prospective Homebuyers

For prospective homebuyers, Carlton suggested buying now if financially feasible. "Jump into the market while you can. This is an infrastructure crisis we will be dealing with for a long time. The government won't resolve it, and builders can't keep up. Prices will continue to rise, and demand will remain high," he added.

Conclusion

The Zillow report underscores the critical need for comprehensive strategies to tackle the housing shortage and affordability crisis in the U.S. As demand continues to outpace supply, innovative approaches and significant efforts are necessary to make housing more accessible and affordable for all Americans. By addressing the root causes of the housing shortage and implementing long-term solutions, it is possible to create a more balanced and affordable housing market for everyone.