The U.S. housing shortage is getting worse, growing by an additional deficit of 1.8 million homes in 2022, according to a new Zillow report.
The U.S. had 4.5 million fewer homes than it needed in 2022, up from 4.3 million in 2021, driven by a surge in population growth that has outpaced housing supply. This housing shortage is yet another obstacle for homebuyers who are already grappling with affordability issues arising from high mortgage rates and high home prices. The 30-year mortgage rate has hovered near 7% since the start of the year, while home prices have increased by more than 40% since before the pandemic homebuying frenzy.
Mortgage rates have risen mainly in sync with interest rates, and an easing policy would likely lower borrowing costs. However, the Federal Reserve isn’t expected to begin dialing back interest rates until later this year, with just one rate cut projected for 2024. While lower rates will certainly give homeowners who are “locked-in” to lower rates room to move home, Fed chair Jerome Powell said in a statement that there will still be a national housing shortage as there was before the pandemic.
“The simple fact is there are not enough homes in this country, and that’s pushing homeownership out of reach for too many families,” Zillow Senior Economist Orphe Divounguy said. “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.”
If you’re considering becoming a homeowner, it could help to shop around to find the best mortgage rate. Visit Credible to compare options from different lenders and choose the one with the best rate for you.
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New housing supply can’t keep up with demand
New builds have picked up in recent years, but more is needed to keep up with demand and address the lingering deficit that has hampered housing affordability for more than a decade. In 2022, over 8 million groups or individuals were looking to form their own households. Yet only 3.5 million homes were available for rent or sale that year, the Zillow report said. Another 1.45 million were added to the inventory in 2023.
Construction will need policy support to alleviate the housing supply deficit, such as reforming zoning rules to allow for more homes to be built. Other steps include reduced parking requirements, ending permit delays and supporting housing trust funds.
“At its core, the housing market is driven by supply and demand,” Zillow said. “When the number of people who want a home increases faster than the number of homes available, prices go up.”
“This balance reached a tipping point when the Great Recession ushered in a decade of underbuilding and millennials — the biggest generation in U.S. history — reaching the prime age for first-time home buying,” Zillow continued. “The result has been worsening affordability, now exacerbated by stubbornly high mortgage rates.”
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Housing deficit biggest in these cities
Zillow said cities on the West and East coasts are seeing the most significant housing deficits. New York and Los Angeles registered the largest estimated overall housing shortage, at roughly 390,000 and 337,000, respectively. Between 2021 and 2022, New York City’s housing shortage increased by more than 3.5%, and Los Angeles’ grew by less than 1%.
President Biden has called on Congress to invest more than $175 billion in affordable housing initiatives, according to a White House statement. The administration has proposed using some funds to build and maintain millions of affordable homes for rent and ownership, such as accessory dwelling units and manufactured housing, and to incentivize state and local governments to reduce barriers to affordable housing development.
Biden has also proposed a new Neighborhood Homes Tax Credit. The proposed federal initiative would enable better affordability for homebuyers by injecting $16 billion to add more housing stock and $10.1 billion for down payment assistance. The tax credit would be provided on the condition that low—or middle-income homeowners occupy the home.
Biden has also called on Congress to create legislation giving a $10,000 tax credit to first-time homebuyers and those who sell their starter homes. The credit would be spread over two years and credited as $400 monthly payments. It would be equivalent to reducing the median home’s mortgage rate by 1.5 percentage points over two years.
Homebuyers can find competitive mortgage rates by shopping around and comparing options. You can visit an online marketplace like Credible to compare rates with multiple lenders at once.
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