The U.S. housing shortage will take more than seven years to fix at the current rate of construction, according to a new report on the housing supply gap from the Realtor.com® economic research team.
Although the supply gap improved moderately in 2024, the country still fell 3.8 million units short of meeting demand relative to new household formations and pent-up demand, the analysis found.
At last year’s construction pace, it would take 7.5 years to close the housing gap and solve a supply shortage that has been the main driver of the housing affordability crisis.
“It is going to take many years to build out of this problem, given the size of the deficit,” says Realtor.com Chief Economist Danielle Hale.
The new analysis found that the supply gap persisted last year even though new home construction outpaced household formations for the first time since 2016, with roughly 1.4 million housing units started.
That’s because household formations were at a nine-year low. At least 1.6 million expected Gen Z and millennial households did not form in 2024 due to various factors, including a lack of affordable housing.
The housing supply gap refers to the difference between new construction and the aggregate demand from both newly formed households and pent-up demand from households that should have formed according to historical trends but did not.
Total demand has outpaced new home construction in each year since 2013, when there were 1 million more new units built than the sum of new households and pent-up demand.
Although the supply gap improved in 2024, it is still the third-largest annual gap since 2012, behind 2020 and 2023.
Regional differences in the housing supply gap
Regionally, if 2024 trends continue, the South would be able to close the housing supply gap in three years, due to the faster recent pace of new home construction there.
Meanwhile, the West would take 6.5 years to close the gap, the Midwest would take 41 years, and the Northeast would see essentially no improvement.
“The South is really leading the way when we think about providing housing for its population, and the West, Midwest, and Northeast are still very close to recent lows,” says Hale.
“Given the trends that we’ve seen in building, given areas where we see building happening more often, we’re seeing better or less progress toward closing that gap,” she adds.
John Ho, CEO of Texas-based home builder Landsea Homes, says that regional variations in building regulations can play a major role in the cost of constructing new homes.
“The average selling price of a home for us in California is about $800,000 to $900,000, while anywhere else that we build in the country, the same entry level home is $400,000—that’s a big difference,” Ho said at a Realtor.com panel discussion at SXSW on Saturday in Austin, TX.
“Why is it expensive? Well, there’s a lot of regulation, there’s a lot of impact fees, there’s a lot of things that cost us, that go into that cost of that house that make it more expensive,” he added.
New home construction is key to closing the supply gap
Ramping up home construction will be key to closing the housing gap. Unfortunately, total annual housing starts have been falling since their recent peak in 2021, due mostly to a decline in multifamily construction.
Single-family home construction has been roughly flat since 2022, at around 1 million units per year, and isn’t expected to grow much in 2025 either.
The National Association of Home Builders forecasts single-family starts to grow just 0.2% this year, to an annual rate of 1.01 million units, and rise an additional 4% in 2026, to a 1.05 million pace.
President Donald Trump’s tariff agenda could be a headwind, particularly his newly imposed tariffs on Canada, which supplies much of the lumber used in residential home construction.
After Trump imposed the tariffs on Tuesday, lumber prices spiked to their highest since the peak of the COVID-19 pandemic supply chain disruptions, according to the industry publication Wood Central.
“If there’s high tariffs coming, and if the lumber prices spike back to where they were in COVID…it’s going to be a problem—homes are gonna stop being built, apartments are going to stop being built,” said Jared Kuhn, vice president at home builder technology firm Icon, at the Realtor.com SXSW event.
On the other hand, Trump has called for an increase in domestic timber production and signed an executive order potentially opening up vast swaths of national forest for logging.
“Home builder sentiment has been on a bit of a roller-coaster ride lately, stemming from mortgage rates, concerns about housing demand, and now tariffs and other policy,” says Hale.
“We are going to see builders continue to build, but they are heading into a challenging environment, and so I think there are legitimate questions around how much they’ll be able to eat into this gap, unless we see some significant policy changes,” she adds.