Efforts to ease building regulations are gaining momentum, but housing remains in short supply due in part to challenges related to financing.
The U.S. housing shortage has remained in the millions for years, and the gap has not closed meaningfully despite waves of construction, changing migration patterns, and growing calls for less restrictive zoning.
What’s changing now is how some housing experts explain why.
A new report from the Center for Public Enterprise on Multifamily Housing argues that project approvals are not the only hurdle. Many developments simply aren’t built because funding isn’t working. To close the gap, the report estimates that the United States would need to increase multifamily construction from about 350,000 units a year to about 500,000 units a year, and maintain that pace for about 10 years.
Estimates vary widely depending on how housing need is defined and measured, but Paul E. Williams, executive director of the Center for Public Enterprise and author of the report, estimates the supply gap to be about 5 million units.
“There are a lot of different ways to measure it, but most estimates fall between about 1.5 million and 7 million homes,” Williams told Inman. “We tend to take the middle ground.”
It’s not just zoning – the deal has to be done in pencil.
For years, housing shortages have been viewed as a zoning and land use issue, with local governments often blamed for limiting supply. Williams doesn’t entirely agree, but says the reality is actually more complicated.
“Zoning is a big part of it, but especially for multi-family housing, the financing part is core,” he said.
Unlike single-family home builders, who can often scale up production and sell homes individually, multifamily developers rely on more complex financing that is highly sensitive to interest rates and investor demand. A typical project requires bank financing to cover about 60% of the cost and the remaining 40% from equity investors, a structure that is becoming increasingly difficult in today’s high interest rate environment, Williams said.
“If market-rate projects don’t go as planned during a housing shortage, there’s clearly a problem with the investment climate,” he added.
That dynamic extends across the country. Even as metropolitan areas across the country, including states like California and Illinois, move to ease restrictive zoning, housing starts have not kept pace.
“They’re creating new zoning capabilities,” Williams said. “But we still need investment to fill that container.”
The report points to past periods when federal policy helped free up that investment climate. These include the late 1960s, when new financing tools such as mortgage-backed securities expanded housing liquidity, and the early 1980s, when tax reform made multifamily development more attractive.
In both cases, the result was a continued increase in apartment construction, which Williams said is essential today.
“The challenge is not just about raising the line,” he said, referring to long-term construction trends. “It continues to rise.”
The report also points to a series of federal policy changes aimed at improving the economics of multifamily development, from expanding construction financing to adjusting tax incentives to attract more capital, the same kinds of tools that helped fuel a sustained building boom in past decades. Williams said without these changes, it will be difficult to maintain the level of construction needed to close the gap.
Which agents should monitor and where they can influence
For agents and intermediaries, the impact is already being felt in the form of inventory constraints and uneven supply across markets. The report claims that the development pipeline is already strong, with a backlog of projects that could move forward if funding conditions improve.
“If funding improves, more of the pipeline could come online,” Williams said.
On the other hand, smaller, less capital-intensive projects are more likely to move than large-scale institutional developments that rely on more complex financing structures. This change has also reinforced the growing importance of multifamily construction, especially in urban areas and high-demand markets where single-family development is restricted.
“If a lot of the shortfall is caused by restrictions on multifamily housing, then a lot of what needs to be filled will be multifamily,” Williams said.
This has implications not just for developers, but also for the broader real estate industry, including agents who navigate tight inventory and advise clients on where to expect next supply. Williams said changes in national policy around funding will ultimately play a big role, but industry experts can help shape the conversation.
Williams said industry groups like the National Association of Realtors have increasingly begun to address supply issues in recent years, in part due to pressure from agents themselves.
He said: “Real estate agents who recognize this as an issue should absolutely tell their local estate agent association that they are concerned about this issue and would like to see that branch become more involved in improving the policy environment and housing supply.”
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