U.S. Housing Shortage: Everything, Everywhere, All at Once

Every American city has a housing supply problem, but each city's housing supply problem is unique.

That's one of the conclusions of research just published by my colleagues at Fannie Mae. While the United States does indeed have a national shortage of affordable housing, every state and city's path to addressing it is relatively unique, and the tools and tactics used to create badly needed new housing supply will have to be tailored.

Those tools and tactics to boost our housing supply are readily available, if less readily implemented. Increasing housing for low- and moderate-income homeowners and renters will require hard choices and changes that many communities have a history of resisting. Until those choices are made, however, the economic and social benefits of adequate housing supply will be squandered, and the economic and social challenges caused by its lack will grow.

The causes of the housing supply crisis are widely understood. After the Great Recession, new home construction dropped like a stone. Fewer new homes were built in the 10 years ended 2018 than in any decade since the 1960s. By 2019, a good estimate of the shortage of housing units for sale or rent was 3.8 million. The pandemic-induced materials and labor shortage exacerbated the trend, however, as evidenced by the surge in rents and home prices in 2021.

Rising mortgage interest rates have already reduced housing demand, particularly for new homes, and a possible economic slowdown could reduce demand further. We expect that prices and rents will likely stabilize or even fall in some markets. Nevertheless, the supply problem will remain, and the pain it causes will likely continue to be felt mostly by low- and moderate-income families.

Making sure mortgage funds are available to create and preserve affordable housing supply for low- and moderate-income families is central to what Fannie Mae does. Our research estimates that Fannie Mae has supported the addition or retention of more than 575,000 affordable units from 2019 to 2021. The lion's share of that total comes from our purchase of loans on newly constructed single-family homes bought by households with moderate-to-low incomes, our financing to preserve affordable multifamily rental housing, and our investments in low-income housing tax credits.

We can do more such financing, but only if the housing supply is there to be financed. And it isn't. Until communities everywhere begin to take substantive steps to build and preserve affordable housing stock where they are needed most, and in the way they are needed most, families everywhere will continue to struggle with undue housing cost burdens.

Which brings me back to Fannie Mae's just-published research, specifically a research report authored by Fannie Mae economists Kim Betancourt, Stephen Gardner and Mark Palim. The authors have evaluated the housing supply of the 75 largest metropolitan markets in the U.S. and stacked it up against the housing needs of the people living in those markets.

What emerges from this work is the conclusion that while our housing supply problem is a national issue, solving it is a local one.

For instance, the most housing-cost-burdened households are not just in coastal metros with high housing costs. Some of the nation's most significant shares of housing-cost-burdened households are in less expensive metros such as Fresno, Charlotte, and Las Vegas. Even many smaller metro areas, such as El Paso or McAllen, TX, do not have a housing supply that is affordable for large swathes of their populations.

Addressing housing supply shortages will require different, highly localized strategies. As the research report lays out, more affordable multifamily rental housing in some markets, such as Dallas and Atlanta, could make a big difference in improving overall housing affordability. In other markets, solutions should be focused on the building of new single-family homes, while in other markets it may be preserving existing multifamily housing.

However, one conclusion is inescapable: The supply and affordability problems described in this report, which is based on 2019 data (the last pre-pandemic year for which usable data on housing cost burdens exist), has gotten worse. Even with the recent slowing down of home price growth and the reduction in demand caused by inflation and higher interest rates, the run-up in rents and home prices since 2019 has been catastrophic for working families.

And the only way out of the supply crisis is to create more housing and preserve the affordable housing we already have.

While the economic drivers of housing costs – materials and labor inflation, supply chain disruptions, etc. – may take years to improve, there are things that states and municipalities can do, in partnership with investors, builders, and lenders, to help ease the way for more housing. Zoning reform efforts to encourage more density and multifamily housing near transportation and job hubs is one way to help, and there are promising signs in some of our most cost-burdened states that such efforts will work. Another way would be to boost efforts to scale back or streamline the regulatory barriers that slow down new construction, particularly for manufactured homes and for the smaller starter-homes that have all but disappeared in many major metro areas and made it impossible for millions to buy their first home.

At the federal level, low-income housing tax credits have been one of the most successful capital-generating tools for affordable housing creation and preservation for more than three decades, and should be expanded and strengthened. And bolstering assistance for first-time homebuyers and low-income renters could incentivize the creation of more affordable housing supply where the demand, and the need, is greatest.

We at Fannie Mae, along with the thousands of mortgage lenders and investors who we work with every day, stand ready to finance the creation and preservation of affordable housing. Indeed, in the United States we enjoy one of the most effective and efficient systems of housing finance in the world. It's time we created the housing supply system to match it.