Does the U.S. Actually Have a Housing Shortage?

Right now many people are debating why the U.S. housing market is broken. Some blame interest rates. Some blame prices. Some blame zoning laws.

While the truth is a mix of all of these factors, there’s one thing that no one seems to agree on—supply. Does the U.S. actually have a housing shortage, or is something else going on?

When Supply is Not Supply

While many believe that the U.S. housing market has a supply problem, this view isn’t universally shared. For example, Jon Brooks, a real estate analyst, recently tweeted the following:

Everyone keeps saying America has a “housing shortage.”

It doesn’t.

Divide total homes by population and you get this: We’ve never had more housing per person than we do right now.

The problem isn’t supply. It’s prices.

Total units divided by population isn’t the best measure of this since U.S. households have been getting smaller (i.e. fewer married couples, fewer children, etc.) over time.

But this isn’t even the primary issue here. Brooks’ argument overlooks a more important point—many of these housing units aren’t in areas where people actually want to live. Housing units in unsafe areas or locations with a lack of economic opportunity aren’t ones that people want.

Nowhere is this more true than in major American cities (particularly in the Midwest) that saw both increased crime and a declining economy over the latter half of the 20th century. Peter Banks, President of the Boyd Institute, summarized this trend well:

Between 1960 and 1992 America went from less than 9,000 murders a year to a peak of 24,000. Other crimes such as burglary underwent a similar process and increased by a factor of nearly 5. A disproportionate share of this growth occurred in the old industrial cities of the Northeast and Midwest, which were also entering a period of economic decline during that era, the result of a weakening US industrial base.

Because of this dual shock of massively elevated crime and a weakening of the industrial sector, many of these cities entered into what can only be characterized as a death spiral. St. Louis, Cleveland, and Pittsburgh each also lost roughly half their populations, and even cities like Chicago (which managed to weather the storm relatively well) shed nearly a third of their residents.

While “where people want to live” is subjective, areas with low crime and good economic opportunity tend to be universally valued. As a result, these are the only areas where housing supply truly matters. 

But the current supply of good housing is just one issue. Where new housing is being built is another.

Location, Location, Location

Even if you agree that there’s a lack of “good” housing in the U.S., the data suggests that new home construction isn’t helping as much as we’d like. Unfortunately, there’s a geographic gap between where homes are being built and where people actually live.

This 2024 report from the Office of the Comptroller of the Currency (OCC) highlights how the areas with the highest housing production tend to be in the Southeast, South, and Mountain West (Quintile 5 in orange):

Quintile 5 only contains 22% of the U.S. population, but had half of the single family home completions in 2023! More importantly, quintiles 1 and 2, which contain heavily populated areas like New York, California, and Chicago, hold 40% of the U.S. population, yet only had 34% of all single family completions.

In other words, we’re building more housing in areas where there aren’t as many people (Quintile 5) and less housing where there are lots of people (Quintiles 1 & 2). 

I don’t blame the builders though. As much as they want to build more housing, many times their hands are tied by local regulations.

Why Zoning & Interest Rates Keep Supply Offline

In places like New York and California, strict zoning regulations limit the supply of housing. When builders are forced to adopt certain standards, they don’t have the freedom to build any kind of home that they want. 

Nowhere is this more true than with the “starter home” (i.e., homes that are 800-1,200 square feet in size). As this chart from Bankrate shows, the median new home size in the U.S. grew from 1,525 square feet in 1973 to a peak of 2,467 square feet in 2015 before declining to 2,146 square feet by 2024:

While one might argue that larger home sizes are a matter of consumer preference, the real issue seems to be structural in nature. As Patrick Tuohey wrote earlier this year for the Better Cities Project:

Builders respond to the financial and regulatory environment cities create. Minimum lot sizes, setback requirements, parking mandates, and other local rules often make small homes difficult to build legally, let alone profitably. After the Great Recession, many builders also shifted toward higher-margin projects to reduce risk, reinforcing a preference for larger houses aimed at wealthier buyers.

The result is that the traditional starter home—a roughly 1,000-square-foot house on a modest lot—has become financially implausible in many markets. Even when builders want to offer smaller units, land costs and zoning constraints push them toward higher price points.

Since builders tend to only construct bigger homes, this means that many households will need to delay their first home purchase until they can afford such a home. These delays in household formation are also showing up in the data. As Freddie Mac’s November 2024 housing report concluded:

If housing costs as measured by rents were more affordable, we estimate that the U.S. would have added 1 million more households with most of the growth coming from younger households.

That is 1 million households that are staying at home or living with a roommate that wouldn’t have otherwise. That’s how bad the U.S. housing market is today.

What makes this dynamic even worse is that 30-year mortgage rates are still hovering around 6%. As a result, many existing homeowners (with lower rates) are unwilling to move and accept a higher rate. This keeps their housing supply locked up longer than normal.

This problem is particularly pervasive among older adults, who likely would have downsized after their children moved away. However, since they’ve decided to stay put, their housing remains underutilized. This keeps younger families from moving into these larger homes that better fit their current needs.

Whether we look at the lack of good supply, increased underutilization, or elevated interest rates, the U.S. housing market has seen better days. However, there are signs that the market may be near a turning point.

A New Hope for U.S. Housing?

While it’s quite clear that the U.S. has a housing supply problem, there are a few things that could help to resolve it.

First, more homeowners are borrowing at higher interest rates. As Realtor.com reported, as of Q3 2025, the share of mortgages with an interest rate above 6% surpassed the share of mortgages below 3%:

This is good news because it shows that borrowers are becoming desensitized to higher rates, which could signal a new normal across the housing landscape.

Second, sellers seem to be more willing to sell their homes than in previous years. As the Kobeissi Letter reported:

Home sellers outnumbered buyers by 47.1% in December 2025, the largest gap since Redfin data began in 2013.

While some might look at this as a bad thing, it actually signals a big shift in seller behavior. With more people trying to sell their homes, it will put downward pressure on prices and start to unfreeze the real estate sector.

Lastly, President Trump recently nominated Kevin Warsh to chair the Federal Reserve. Warsh has commented on how he wants to lower interest rates—a stance that aligns with Trump’s public comments on the matter.

While lowering the Fed Funds Rate isn’t guaranteed to drop mortgage rates, they’re going to try. And, if they succeed, then we will see a lot of supply enter the market. Of course, there will be more demand as well, so it’s anyone’s guess whether lower rates will “fix” the housing shortage. 

Though U.S. housing has been in a bind for the past few years, recent developments suggest that things are starting to give. Borrowers are getting used to current rates, more homeowners are trying to sell, and policymakers are signaling a push to lower interest rates. While no single factor will revive the U.S. housing market on its own, maybe a combination of them will.

Until then, thank you for reading!

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This is post 490. Any code I have related to this post can be found here with the same numbering: https://github.com/nmaggiulli/of-dollars-and-data