Housing Underproduction Decreases to 3.85 Million Home Shortfall

A new report released by Up for Growth examined the root causes of housing underproduction in the United States, using data from 2022. It focused on five metro areas as case studies to explore the changing housing market dynamics nationwide.

The gap between housing supply and demand narrowed, moving from 3.89 million in 2021 to 3.85 million in 2022. While underproduction remained flat between 2021 and 2022, 3.85 million missing homes is a staggering shortfall.

Drivers and Trends

Housing unit completions increased by 3.3%, resulting from increased housing production and the continuation of pandemic-related migration patterns as people adjust to the new hybrid work environment.

Housing production has not kept pace with household formation. From 2021 to 2022, only 0.88 new homes were built for every household formed nationwide. In metro areas, the total number of metros experiencing underproduction increased from 193 to 198, with 83% (256) of all markets and 24 states worsening.

Multifamily housing completions outpace housing starts at a record pace in 2024. Peak delivery of multifamily homes occurred in 2024, about 2 years after the peak of the permit cycle. Beginning in 2025 and continuing for at least one year, multifamily unit delivery is expected to decline steeply.

Highlights from the Case Studies of Metropolitan Areas

In San Francisco, CA: Improved year-over-year underproduction numbers in San Francisco were driven by decreased demand for housing rather than an increase in production relative to new household formation, i.e., 0.6 units to 1 new household.

In Raleigh, NC: The ratio of new housing units to new households formed is 1.08 to 1. The region has successfully addressed housing demand through proactive land use reforms, producing 4.34 homes for every new household formed between 2019 and 2022. Zoning changes, particularly the allowance of missing middle housing and ADUs, have significantly increased the housing supply.

Despite declining housing underproduction from 2021 to 2022, the United States still has a deficit of 3.85 million homes. With new housing starts stagnating due to high costs, constrained capital markets, and the high cost of borrowing, the report highlighted the importance of implementing pro-housing policies at all levels.

Federal actions include removing federal barriers to housing development, modernizing housing finance tools and products, and spurring innovation.

State and local actions include removing federal barriers to housing development (e.g., updating local zoning and land use codes, revising building codes, exploring statewide legislation to enable ADUs, eliminating minimum parking standards), implementing incentive-based policies (e.g., density bonuses, tax abatements), and create financing opportunities for new projects.