A new White House economic report puts new focus on America’s housing shortage, concluding that the country is short of at least 10 million single-family homes. However, how large that gap actually is remains an open question and is hotly debated.
Recent estimates by researchers and housing analysts put the number of homes at around 1 million to 10 million, and consumers and real estate professionals can have a hard time understanding the problem.
Rick Palacios Jr., director of research at John Barnes Research and Consulting, this week rejected the White House’s calculations, saying on the X show that the 10 million figure is “far higher” than other estimates he has seen. He added that his company currently says the gap is about 1 million units.
Rick Palacios
Large differences in estimates of the deficit are not necessarily due to sloppy calculations, but come down to a more fundamental question: what exactly are researchers trying to measure?
“There’s no real consensus on what a housing shortage actually means,” Eric Finnigan, vice president of demographic research at John Burns Research and Consulting, told Inman. “If you asked 10 people at a housing conference, they would all have their own concept.”
The White House’s estimates, based on the Council of Economic Advisers’ latest economic report, have different calculation methods. In it, researchers looked at how many more single-family homes there would be today if builders had not backed down after the housing crash and had continued at the pace they were before 2008. From that perspective, it becomes a measure of how much building you’re missing out on, rather than what’s actually available in today’s market.
In contrast, John Barnes Research and Consulting’s estimates focus on the present, specifically whether there is enough housing currently available for people who are actively considering moving.
Narrower real-time view of supply
John Barnes Research and Consulting’s estimate, which currently stands at about 1 million units, is based on vacancy rates rather than long-term projections of housing demand, Finnigan said.
Eric Finnigan
The company analyzes U.S. Census data on homeownership and rental vacancy rates and compares current levels to what the company considers a “normal” period from the mid-1990s to the early 2000s. When vacancy rates fall below historical benchmarks, it indicates a lack of available housing for people who are actively looking to move.
In fact, that imbalance changes the behavior of the market.
“If you have 100 people looking for a home and there’s only 50 available, the prices are going to be very different,” Finnigan said. “Some people don’t move, and some people raise prices.”
This approach measures whether there is enough housing for people currently considering moving, rather than households that could be formed under different conditions.
By this measure, rental and condominium vacancy rates are still below normal, indicating a shortage, but not on the scale that some high-profile estimates suggest.
He said the company’s latest estimates also show a downward trend, with the number of homes falling from about 1.1 million a year ago to about 1 million in recent months, as new construction accelerates and household formation slows slightly from 2022 onwards.
Why some quotes are high
Some estimates take a broader view by trying to account for pent-up demand and households that don’t yet exist due to affordability constraints. Some companies are focused on building a long-term foundation.
The White House report itself says its 10 million-unit figure is roughly in line with other estimates that use different methods to measure the multi-million-unit housing shortage. But these numbers don’t line up neatly. The White House models the single-family housing shortage, but other estimates look at the total number of housing units or take into account multifamily housing supply and population trends.
For example, Realtor.com researchers recently estimated the U.S. housing supply gap at approximately 4 million units based on the relationship between new construction, household formation, and pent-up demand.
Some models also take into account ‘missing households’. Finnigan noted that about 18 percent of adults ages 25 to 34 now live with their parents, compared to historically closer to 10 percent. Some researchers treat this gap as an unmet housing need.
These approaches answer different questions. We are not measuring whether there is a shortage of housing in today’s market, but rather how many households would be formed if housing were more available.
Supply is not the only constraint
However, there is an important caveat to the one million number.
It’s not just quantity that’s lacking. It also depends on whether housing exists in the right locations and at prices that people can afford.
“If you drop a million units that cost $1.5 million each, you’re going to end up with vacant properties,” Finnigan said.
This discrepancy occurs in various markets. Parts of the Sunbelt, including metros like Nashville and Austin, are experiencing a surge in new construction, facing rising inventory and falling rents. Meanwhile, many regions in the Northeast and Midwest, where construction has lagged, continue to experience tougher conditions and more pronounced price increases.
“Sometimes it feels like there’s too much housing in some markets and not enough in others,” Finnigan said.
Perhaps more shocking is where Finnigan thinks this debate is heading. He said JBREC’s estimated shortfall has been cut by more than half in the past two years and the company calculates it could be completely gone within a few years, but that alone won’t solve the problem that most Americans actually feel.
“I think housing prices today are a bigger problem than the lack of supply,” Finnigan said. “People aren’t going to be able to live in the homes they want to live in or where they want to live” — unless prices fall, mortgage rates fall, or incomes increase significantly.
So when faced with headline shortage numbers, a more useful question might not be how many homes are in short supply, but how many are realistically within reach.
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