The United States is facing a significant shortage of new homes due to more than a decade of under-building relative to population growth, a new analysis from Realtor.com revealed. The gap between single-family home constructions and household formations increased to 6.5 million homes between 2012 and 2022. However, when new multi-family homes are factored in, the gap is reduced to 2.3 million homes, primarily rental units. The trend of underbuilding reflects in both homeowner and rental vacancy rates, which have decreased significantly over the years.
The latter half of 2021 saw the fastest pace of completed single-family home starts in a decade. However, the surge in mortgage rates as part of the Federal Reserve’s campaign to rein in inflation led to a slowdown in construction, especially in the single-family home sector. Despite the boost in multi-family building, a supply gap persists, with the number of yearly household formations outpacing housing starts in 2022. As a result, the housing market is putting pressure on both sale and rent prices.
To address the current housing shortage, the analysis found that the rate of housing starts, including single-family and multi-family building, needs to increase by 50% from the 2022 rate in order to close the existing gap. However, challenges persist in terms of affordability, as most new multi-family units are intended to be used as rentals. As inflation and mortgage rates are expected to soften later in the year, buyers are likely to return to the market in search of an affordable home, which will continue to put pressure on the market.
