America's Housing Market Isn't Catching Up

Millions of single-family houses remain missing from the U.S. housing market as a result of underbuilding compared to population growth, and experts say it's going to take some time to close the gap.

While there has been a recent uptick in new construction, it hasn't kept pace with the increasing number of households, according to a Realtor.com report issued Tuesday, which is widening the gap between supply and demand. The shortfall disproportionately impacts single-family homes—a gap of 7.2 million since 2012—creating a mismatch that points to a need for more construction.

Roughly 1.7 million new households formed last year while homebuilders started construction on 947,200 single-family homes, Realtor.com said, a gap that widens when looking out over the last 12 years. Between 2012 and the end of last year, 17.2 million new households formed, but only 9.98 million single-family houses were built in the same period.

To close the existing 7.2 million home gap, the rate of single-family home construction would need to triple, and it would still take four to five years to meet demand, according to Realtor.com.

"The U.S. is in a long-term housing shortage with the construction of new homes failing to keep pace with a growing population," Danielle Hale, chief economist at Realtor.com, said in a statement shared with Newsweek by email.

Homebuilders are trying though. According to the report, there has been a "spillover effect" from the increase in single-family housing started during the COVID-19 pandemic, which drove the number of homes completed through 2022 (1,022,000).

In 2023, however, the number of completed single-family homes decreased by 2.2 percent to 999,700, Realtor.com said, suggesting that builders are actively "managing their pipeline."

Amid the persistent housing supply shortage, many homebuyers continue to encounter challenges in finding suitable options, according to Realtor.com, intensifying concerns about the affordability of housing.

In 2022, only 38 percent of newly constructed homes sold for less than $400,000. That figure, however, increased to 43 percent by the end of last year, suggesting a shift toward affordability in new homes.

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How Does the Gap Close Faster?

Multi-unit housing.

According to the report, while homebuilders started the construction of roughly a million single-family houses last year, they started 472,700 multi-family homes over the same period, which is a cooldown from a multi-family construction boom seen over the pandemic.

Multi-family properties—condos and apartments—accounted for an average of 32.1 percent of housing starts from 2012 to 2021, seeing an increase to 35.1 percent in 2022, as climbing mortgage rates and prices dampened the demand for single-family homes.

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The decline in interest for single-family residences as prices rose opened the door for increased construction within the multi-family sector, which were predominantly rental properties. In 2023, nearly 97 percent of all initiated multi-family units were designated for rental purposes, Realtor.com said.

However, the multi-family share slightly decreased to 33.3 percent last year, reflecting a partial realignment toward single-family home construction. Despite the shift, the proportion of multi-family home completions climbed to 31 percent in the same year, marking the highest percentage since 2015.

"The elevated level of both single- and multi-family construction coming to market this year is likely to put downward pressure on rent prices in many markets, welcome news for renters," Hale said.

"It also means that the higher than usual share of new homes for sale is likely to continue, giving home shoppers willing to consider new homes more options."