A Primer on the Nation’s Housing Supply Crisis

The United States suffers from a severe undersupply of affordable rental homes that fails to meet demand nationwide. Every state in the nation is impacted by this demand-supply imbalance, with the number of low-cost units falling from 33% of the total market in 2012 to less than 25% in 2017. For every 100 low-income households, there are only about 55 affordable, available, and adequate homes; for every 100 extremely low-income households, there are only about 36.

The lack of affordable options forces families to pay unsustainable rents that can lead to housing instability. Over the past 20 years, average rent prices rose by 13%, adjusted for inflation, with similar increases in almost every state and outpacing wage growth. Today, the average monthly rent for a modest two-bedroom apartment is over $1,200, about twice as much as many families of four with poverty-level incomes can afford. As of 2019, HUD found 7.77 million renters faced “Worst Case Needs,” which HUD defines as paying more than one-half of income for rent or living in severely inadequate conditions.

High rents weigh heavily on a low-income household’s finances. Seventy percent of extremely low-income renter households, those making less than 30% of the area median, spend more than half of their incomes just on rent and utilities. After paying rent, the median renter earning less than $15,000 annually has about $410 left each month for other essentials such as food and health care. Heavily rent-burdened households are constantly at risk of falling behind and facing eviction, as the loss of a job, the death or departure of a working household member, or a major medical crisis could make rent impossible to afford. Unaffordable rents also prevent families from saving to buy a home.

These rent burdens impact households of color particularly hard: 54% of Black renters and 52% of Hispanic renters spend more than 30% of their income on rent, compared to only 42% of white renters.

After decades of decline, the supply of entry-level housing is far too low to meet the rising demand of first-time buyers. From 2016 to 2021, the total number of active listings fell from about 1.6 million to about 600,000. Despite unprecedented demand for new housing, just 28% of sales in the last 12 months went to first-time buyers, the lowest level in the past six years.

Low supply has led to unattainable prices for first-time homebuyers. Throughout the top 100 metropolitan areas in the United States, a median-priced home was unaffordable to 67% of potential first-time buyers, nearly 13.4 million Americans.

The lack of affordable starter homes deprives younger Americans and first-generation homebuyers from acquiring a crucial wealth-building asset: real estate, the primary source of wealth for most American families. In 2021, a median-income household had to spend more than 32% of its earnings to afford a median-priced home. The cost of homeownership has not been this high since 2008, with the most serious ramifications felt amongst younger Americans and those with the lowest earning potential.

Increasing the supply of rental and starter homes must be a national priority. The National Association of Realtors projects an additional 700,000 units must be constructed annually through 2031 if the nation is to meet the current level of demand, which would far outpace recent residential construction trends and require a nearly 60% increase over the 1.3 million homes built in 2020.

New construction continues to neglect the low-income rental market, with only 12% of new units offering monthly rents below $1,050 (the median cost of rent and utilities in 2018). In recent years, older housing stock, a key source of housing for low-income families, has less frequently transitioned to affordable housing.

The construction of new homes at price points for first-time homebuyers is also insufficient. The quantity of new homes constructed with fewer than 1,400 square feet (often a measure of “entry-level” homes) has been falling sharply since 2008. In 2020, only 65,000 entry-level homes were built compared to 420,000 in the late 1970s, a decline of over 80%.

The prevalence of zoning restrictions and exclusionary land-use policies is a barrier to affordable housing production. Examples include restrictions on multifamily homes, parking requirements, building height limits, manufactured housing, as well as lengthy permitting and environmental review processes. Government regulations for construction and development add about 30% to the cost of multifamily housing. Another challenge is the lack of incentives for the private sector to expand affordable housing production. Unsubsidized affordable housing struggles to compete with higher-end housing, which tends to generate greater profit margins for developers and property owners.

The J. Ronald Terwilliger Center for Housing Policy was founded to tackle the nation’s severe shortage of affordable homes for both rent and sale through evidence-based, bipartisan policy solutions. On December 14, the center kicked off its “Getting Serious About Housing Supply” event series, exploring our nation’s housing shortage. The first event was focused on the demand-supply imbalance, its root causes, implications for renters and homeowners across the nation, and potential solutions.