By Malak Kalasho
Nationwide housing supply shortages have made housing increasingly inaccessible and
unaffordable for many Americans. In 2018, a Freddie Mac report estimated that there was a supply shortage of 2.5 million homes both for rent and for sale. 1 They now estimate the shortage to be 3.8 million homes, though economists estimate the excess demand to be anywhere from 2 to 7 million. The housing crisis is impacting Americans of all income levels but hurting low- income renters the most.
The following figure displays increasing nationwide housing underproduction over the past decade as estimated by Up For Growth, a nonprofit research organization focused on housing shortages. 2
The housing shortage can also be explained by the number of permits issued for every new job in a metropolitan area. A healthy ratio based on the historical average is 1 permit for every 2 new jobs; however, many major metropolitan areas far exceed this ratio. In the San Francisco-Oakland-Hayward Metropolitan area, 1 new single-family unit permit is issued for every 28 new jobs, and in the New York-Newark-Jersey City Metropolitan area, 1 permit is issued for every 34 jobs. 3 The following map displays the metropolitan areas with the worst housing shortages across the country.
The supply shortage has made housing increasingly unaffordable for a growing number of Americans. As housing costs rise faster than wages, Americans spend an increasing share of their income on housing. The Department of Housing and Urban Development (HUD) defines affordable housing as a unit that costs no more than 30 percent of an occupant’s income, 4 but according to recent data from the U.S. Census Bureau, 46 percent of American renters spent more than 30 percent of their income on rent in 2020. 5
Federal, state, and local policymakers have historically attempted to address housing crises through various policy initiatives, though they have often disagreed on the best housing policies.
Many policymakers have advocated for zoning reform that would allow for higher density
housing, though this depends on local governments that are typically in favor of more restrictive zoning laws. Legislators have also implemented rent control programs that limit how much landlords can charge their tenants as well as public housing for low-income families. Federal and state governments have also provided housing subsidies like vouchers that provide rent subsidies to low income people or mortgage interest rate subsidies that help homebuyers. 6
While there are several ways of addressing housing crises, economists favor some over others. Empirical research has shown that restrictive zoning laws are a main driver of the nationwide housing shortage and, as a result, inflate prices. 7 Because of this, many economists agree that less restrictive zoning laws would increase the supply of housing and reduce prices. 8
Many economists are also in favor of housing vouchers. An analysis by the Rutgers Business School found that demand-side programs produce more efficient outcomes than supply-side programs. 9 Based on their research, they argued in favor of housing vouchers over public housing. Another study by the University of Wisconsin-Madison also found that housing vouchers meet the efficiency standard of positive net benefits. 10
By contrast, economists are less in favor of rent control programs. While rent control can lower displacement and insure tenants against rent increases, most economists believe it to be an ineffective and counterproductive long run solution. By setting the rent at less than the market equilibrium, rent control laws result in an excess demand for local rental units, which further feeds into the housing shortage. A 2018 study on evidence from San Francisco found that a rent control policy reduced the rental housing supply and likely increased market rents in the long run despite being designed to improve affordability. 11
Although many policy attempts to address the crisis have failed, some state and local
governments have succeeded in passing new laws, some of which directly target affordability while others try to increase supply. 23 states, including California and New York, currently offer tax breaks to developers who build low-income units, and at least five more are trying to get similar legislation passed. 12 Some local governments have also passed legislation to address their housing crises. In December 2018, the Minneapolis City Council passed “Minneapolis 2040,” a comprehensive plan that included legalizing two- and three-unit homes on previously zoned single-family properties. In June 2022, the Denver City Council also passed a policy that incentivizes developers to build more affordable units, after Colorado passed an inclusionary housing bill in 2021 that enabled them to do so. 13
There has also been some success on the federal level. In May 2022, the Biden-Harris
Administration announced the Housing Supply Action Plan to increase the supply of housing through several administrative and legislative initiatives within five years. These initiatives include rewarding “jurisdictions that have reformed zoning and land-use policies,” deploying “new financing mechanisms to build and preserve more housing where financing gaps currently exist,” expanding “existing forms of federal financing,” among others. 14 Last month, the Administration released a report outlining the progress of the plan. Some of this progress included HUD’s announcement of awarding over 19,00 new Housing Choice Vouchers as well as the administration’s announcement of new steps to make it easier to build affordable housing. Although the administration would need bipartisan support from Congress and state and local governments to fully address the crisis, this plan is a major step forward in addressing the nationwide housing shortage.
References
1 Housing Supply: A Growing Deficit. (2021, May 7). Freddie Mac. Retrieved November 26, 2022, from
https://www.freddiemac.com/research/insight/20210507-housing-supply
2 2022 Housing Underproduction™ in the U.S. – Up For Growth. (n.d.). Up for Growth. Retrieved
November 26, 2022, from https://upforgrowth.org/apply-the-vision/housing-underproduction/
3 Housing Shortage Tracker. (n.d.). National Association of REALTORS®. Retrieved November 26,
2022, from https://www.nar.realtor/research-and-statistics/housing-statistics/housing-shortage-tracker
4 Defining Housing Affordability | HUD USER. (2017, August 14). HUD User. Retrieved November 26,
2022, from https://www.huduser.gov/portal/pdredge/pdr-edge-featd-article-081417.html
5 Schaeffer, K. (2022, March 23). Housing affordability in the U.S.: Key facts. Pew Research Center.
Retrieved November 26, 2022, from https://www.pewresearch.org/fact-tank/2022/03/23/key-facts-about-housing-affordability-in-the-u-s/
6 Minott, O. (2022, August 10). Ten Actions Cities Can Take to Improve Housing Affordability.
Bipartisan Policy Center. Retrieved December 29, 2022, from https://bipartisanpolicy.org/blog/10-
actions-to-housing-affordability/
7 Brown, V. (2017, October 18). Zoning, Land-Use Planning, and Housing Affordability. Cato Institute.
Retrieved November 26, 2022, from https://www.cato.org/policy-analysis/zoning-land-use-planning-
housing-affordability#effects-of-land-use-regulation
8 Schladen, M. (2021, April 21). Loosened zoning could cut housing costs, economists say. Ohio Capital
Journal. Retrieved November 26, 2022, from https://ohiocapitaljournal.com/2021/04/21/loosened-zoning-could-cut-housing-costs-economists-say/
9 Malpezzi, S. (2018, January 11). Vouchers a Win for the Housing Market and the Economy | Rutgers
Center for Real Estate. Rutgers Center for Real Estate. Retrieved November 26, 2022, from
https://realestate.business.rutgers.edu/news/vouchers-win-housing-market-and-economy
10 Carlson, D., Haveman, R., Kaplan, T., & Wolfe, B. (2011). The Benefits and Costs of the Section 8
Housing Subsidy Program: A Framework and Estimates of First-Year Effects. Journal of Policy Analysis
and Management, 30(2), 233–255. http://www.jstor.org/stable/23018982
11 Diamond, Rebecca, Tim McQuade, and Franklin Qian. 2019. “The Effects of Rent Control Expansion
on Tenants, Landlords, and Inequality: Evidence from San Francisco.” American Economic Review, 109
(9): 3365-94.
12 Hernández, K. (2022, March 2). Here’s One Way States Are Boosting Affordable Housing. The Pew
Charitable Trusts. Retrieved November 26, 2022, from https://www.pewtrusts.org/en/research-and-
analysis/blogs/stateline/2022/03/02/heres-one-way-states-are-boosting-affordable-housing
13 City Council mandates developers help solve Denver’s housing crisis — even if some don’t want to.
(2022, June 7). Denverite. Retrieved November 26, 2022, from https://denverite.com/2022/06/07/city-
council-mandates-developers-help-solve-denvers-housing-crisis-even-if-some-dont-want-to/
14 Biden-Harris Administration Announces Progress in Implementing its Housing Supply Action Plan.
(2022, October 7). The White House. Retrieved November 26, 2022, from
https://www.whitehouse.gov/briefing-room/statements-releases/2022/10/07/biden-harris-administration-
announces-progress-in-implementing-its-housing-supply-action-plan/