The U.S. is facing a severe housing shortage, currently estimated at 4.7 million homes, exacerbating the affordable housing crisis that is pushing families away from their dreams of homeownership. Latest analysis from Zillow indicates this deficit rose by 159,000 homes in 2023, despite a notable increase in construction over the last five years.
This rise is not as steep as last year’s increase of 257,000 homes, but it suggests that the building boom during the pandemic hasn’t sufficiently addressed the problem. Orphe Divounguy, a senior economist at Zillow, pointed out that “we still don’t have enough housing for those in need.”
This shortage is forcing millions of families into difficult living situations, including sharing homes with people they don’t know. Zillow reports that in 2023, 3.4 million homes were available for rent or sale, while around 8.1 million families were living with unrelated individuals. The gap of 4.7 million homes signifies the defined housing deficit.
While the inventory of homes for sale has increased this year, issues like rising mortgage rates and high prices continue to hinder affordability. These challenges are especially tough for younger people. Interestingly, baby boomers are now outpacing millennials in home purchases, holding the largest share of buyers.
Additionally, Zillow found that millennials are living with non-relatives more than any other generation, with about 38% sharing homes in 2023.
Which cities have the largest housing deficit?
According to Zillow, New York City has the largest housing deficit in the U.S., with over 400,000 units needed. This isn’t surprising, given its status as the most populated city and the high average home value—nearly $800,000—making affordable housing increasingly scarce.
Los Angeles comes in second with a deficit of 338,750 units, while Boston, San Francisco, and Washington, D.C., also rank among the top five, though they have seen some improvements compared to last year.
10 Metros with the biggest housing obstacles as of 2023:
- New York City: 402,361 units
- Los Angeles: 338,750 units
- Boston: 150,541 units
- San Francisco: 139,990 units
- Washington: 132,238 units
- Chicago: 106,522 units
- Seattle: 101,923 units
- Phoenix: 98,703 units
- San Diego: 95,831 units
- Riverside, California: 85,087 units
Why is there a shortage of affordable housing?
A lack of affordable homes in desirable neighborhoods is a major factor. Strict zoning and building regulations often complicate new construction efforts, with discrepancies between different states and cities contributing to varied market affordability.
Interestingly, a recent Zillow analysis revealed that builders were quicker to react to demand spikes during the pandemic in places with fewer building constraints. Cities like Pittsburgh, San Antonio, Phoenix, Dallas, and Columbus saw the most significant builder responses.
Conversely, urban areas such as Seattle, Baltimore, and Washington did not see as much construction as was anticipated based on demand.
Divounguy emphasized, “We know what works. Lowering construction constraints can lead to more affordable housing.” Further research pointed out stark differences in building costs; for instance, constructing multifamily homes in California is significantly more expensive than in Texas due to various regulatory factors and extended permitting processes.
As a result, it’s concerning that there are currently 113 cities where the cost of starter homes exceeds $1 million. Overall, homeownership is becoming increasingly unattainable for the average family, with many households needing a significant salary boost to even consider the mortgage payments on a typical home.
On a brighter note, builders completed 1.45 million housing units in 2023 and are projected to finish an even higher number—1.63 million—in 2024, marking the highest annual totals since 2007.
