A decade of under-building has led to a shortfall of 6.5 million single-family homes in the U.S., according to a new report released Wednesday.
Realtor.com looked at household formation, housing starts, and home sales, and found that given how many households were formed between 2012 and 2022, the U.S. is short of 6.5 million single-family homes.
But that gap diminishes somewhat if households opted to live in multi-family construction, which has boomed. Including multi-family homes, the gap in housing units in the U.S. falls to 2.3 million homes.
Yet most of those multi-family units won’t necessarily provide a path to homeownership, said Hannah Jones, an economic analyst at Realtor.com.
‘Cooling buyer demand and builder confidence led to slower single-family construction and a shift in builder focus to multi-family last year.’ - Hannah Jones, an economic analyst at Realtor.com
“Cooling buyer demand and builder confidence led to slower single-family construction and a shift in builder focus to multi-family last year. While that brings greater supply to the market, most of it will be used for rentals and won’t address ongoing affordability challenges in the for-sale space,” Jones said.
Builders moved into building apartments, rather than single-family homes, “as the rental market remained profitable with nationwide rent hitting a new all-time high,” the report explained. “Through the first three quarters of 2022, an average 94.5% of all multi-family units started were intended to be used as rentals.”
Plus, “these homes take an average of 15 months to complete, and so their impact won’t be fully realized for some time,” Jones added, as compared to single-family homes that take on average 7 months to complete.
In 2022, the U.S. saw 2.06 million household formations, the report said. That refers to a group of people living together. Household formation affects the economy, as it drives demand for housing, and further down the line, spending on household appliances and furniture.
Affordability eroded homes become scarce and rates remain high
Between 2012 and 2022, there were 15.6 million households formed, Realtor.com said. Yet in this 10-year period, only 13.3 million housing units were started, and even fewer—11.9 million—completed.
Over that 10-year period, the rate of housing starts began to slow. Completions have climbed, yet they’re still not enough.
In 2022, about 1 million single-family homes were “started,” or rather, construction began on these homes. That’s 10.6% fewer than in 2021.
Multi-family starts were much higher, up 15% compared to 2021, reaching 545,000.
Amid this backdrop of a housing deficit, affordability has dwindled.
Just a tenth of new homes sold in the fourth quarter of 2022 were less than $300,000. That’s down from 41% of homes being below $300,000 in the fourth quarter of 2019.
“As inflation and mortgage rates likely soften later this year, buyers are likely to return to the market [and will be] in search of an affordable home, and the ongoing housing-supply shortage will only continue to put pressure on the market,” Danielle Hale, chief economist at Realtor.com, said.
Realtor.com acknowledges that its headline figure of 6.5 million “overstates the housing shortage,” since it doesn’t consider multi-family units as homes for buyers.
Learn more on Realtor.com
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