A new report says decades of underinvestment and underbuilding have created a housing shortage and have contributed to rapid home-price increases. The report, “Housing is Critical Infrastructure: Social and Economic Benefits of Building More Housing,” says the U.S. has an underbuilding gap of 5.5 to 6.8 million housing units in the last 20 years, which has put a significant strain on the for-sale housing market.
“The state of America’s housing stock … is dire, with a chronic shortage of affordable and available homes [needed to support] the nation’s population,” according to the report from the Rosen Consulting Group on behalf of the National Association of Realtors. “A severe lack of new construction and prolonged underinvestment [have led] to an acute shortage of available housing … to the detriment of the health of the public and the economy.”
Historically, the U.S. created new housing units at an average annual rate of 1.7% from 1968 to 2000. Over the last two decades, unit growth averaged 1% — and only 0.7% in the past decade. “The large gap in housing production has contributed to an escalation in the cost of renting and rapid house-price increases — often the largest expense for households — exacerbating a growing affordability crisis in many parts of the country,” the report said.
Another way to examine the housing shortage is to look at construction in relation to population growth. From 2010 to 2020, household formation exceeded housing production by nearly 3.2 million units, according to the report. When accounting for housing that needs to be replaced as well as second and vacation homes, the supply- demand gap is even larger at 6.8 million units.
While the underproduction of housing is a nationwide problem, the report also listed Salt Lake City as one of the most underbuilt metros in the country. Based on the number of jobs created, Rosen Consulting estimates Salt Lake had an underbuilding gap of 9,000 units prior to the pandemic.
“From coast to coast, border to border, in cities large and small, in urban communities and in suburbs, it is clear that the United States has fundamentally underbuilt housing, a fact that has led to ever-increasing affordability challenges and financial instability for millions of households,” the report said.
To fill the gap of 5.5 million units and keep up with growth, the report says construction would need to increase 60% relative to the housing production level in 2020.
“Even if building were to continue at the current pace — the most rapid pace in more than a decade — it would still take more than 20 years to close the 5.5-million- unit housing gap,” said the report.
There are a number of negative consequences of not investing enough in housing, including lost economic activity and limited household formation. The report estimates the U.S. is missing $4.4 trillion in residential investment, and the number of 25- to 34-year- olds living with their parents has also more than doubled from 2000 to 2020.
The constrained supply has also hurt housing affordability. In fact, the report highlighted the Mountain states of Nevada, Utah and Idaho as having the largest affordability declines from 2012 to 2019.
“There is a strong desire for homeownership across this country, but the lack of supply is preventing too many Americans from achieving that dream,” said Lawrence Yun, chief economist of the National Association of Realtors. “It’s clear from the findings of this report and from the conditions we’ve observed in the market over the past few years that we’ll need to do something dramatic to close this gap.”
To learn about the specific housing conditions in your neighborhood and area, contact a local Realtor. A directory of Utah Realtors is available at UtahRealtors.com.