Housing Supply Gap Reaches Nearly 4 Million in 2024: Report

Real estate developers are facing high material costs, labor shortage, credit issues, and other headwinds.

A home with a listing price of $23.5 million listing price is for sale in Chicago, Ill., on Nov. 13, 2023. Scott Olson/Getty Images

The United States continues to face a significant shortage of homes for buyers, with the housing supply gap at almost four million units as of last year, according to a recent research report by the real estate listing website Realtor.

“In 2024, new-home construction outpaced household formations for the first time since 2016. Despite this notable progress, the housing gap persists, totaling 3.8 million,” the company said in a March 10 report. This is the third-largest annual supply gap since 2012. “At a 2024 rate of construction relative to household formations and pent-up demand, it would take 7.5 years to close the housing gap.”

Realtors blamed real estate zoning rules and other housing restrictions for limiting the extent to which new construction could have alleviated the supply crisis in the housing market.

Purchasing a home is now a tough prospect for many potential homebuyers, especially younger households whose members make “a typical early- to mid-career salary.” This has resulted in a drop in the rate of 18-44-year-old population forming households over the past decade.

Over 1.6 million homes were completed last year, the highest level in nearly two decades. However, the total inventory of homes for sale continued to remain below the pre-pandemic level. Meanwhile, affordability concerns kept many buyers away from the market.

“Building new homes is a win for the housing market and especially essential for young households that have struggled to form in an era of high housing costs. More home supply means lower prices, which can bring higher home sales.”

“However, builders face barriers such as zoning and permitting regulations, as well as rising material costs, which make building affordable homes relatively challenging,” said the report. “Building more affordable housing, especially in areas with high demand and strong jobs growth, will be important to making homeownership accessible to Americans.”

Vice President JD Vance recently said high immigration rates over the past years are linked to elevated housing prices plaguing the United States.

“We’ve got a lot of people over the last four years who have come into the country illegally—and that’s something we have to work on if we want to meaningfully reduce the cost of housing,” he said in a March 10 speech.

“You go across the world, and you see a very consistent relationship between a massive increase in immigration and a massive increase in housing prices.”

Construction Industry Challenges

Earlier this month, the National Association of Homebuilders (NAHB) told Congress that supply-side headwinds were hurting the housing market.

“United States is facing a fever-pitched housing affordability crisis. Nearly 77 percent of U.S. households cannot afford a median-priced new home,” NAHB Chairman Buddy Hughes testified.

The availability of credit for construction loans is tightening, posing a challenge to homebuilders. In addition, the construction sector is facing a labor shortage, with over 200,000 positions remaining unfilled, he said.

Construction costs are up 34 percent since December 2020, contributing to elevated rents and higher home prices. Tighter land use and zoning regulations for housing and land development have resulted in a low number of lot supply.

Hughes said regulatory costs are now so high that they make up about a quarter of the purchase price of new single-family homes.

He called on Congress to preserve and strengthen programs such as the Low-Income Housing Tax Credit, support construction workforce development programs, boost lumber supplies, and control excessive regulatory costs.

The Trump administration has taken steps to ease dense regulation in the housing sector.

Late last month, the U.S. Department of Housing and Urban Development (HUD) announced it was ending the Affirmatively Furthering Fair Housing (AFFH) rule, which the agency said created affordability challenges and led to red tape.

Originally introduced by the Obama administration, it was terminated by the first Trump administration and revived by the Biden administration.

HUD said AFFH burdened local officials with too many requirements, such as having to answer 92 questions on topics such as disparities in housing opportunities and report on issues such as environmental health hazards that had little to do with affordable housing. It requires HUD fund recipients to ensure their policies did not result in racial segregation.

HUD blamed the regulation for triggering a “decrease in the supply of affordable housing” and leading to higher costs.

With the AFFH rule terminated, localities will “no longer be required to complete onerous paperwork and drain their budgets to comply with the extreme and restrictive demands made up by the federal government,” said HUD Secretary Scott Turner.

“Local and state governments understand the needs of their communities much better than bureaucrats in Washington, D.C. Terminating this rule restores trust in local communities and property owners while protecting America’s suburbs and neighborhood integrity.”