The US housing market is severely broken, characterized by high demand driving up prices while new supply consistently fails to meet needs. Affordability, as measured by the Case-Shiller index and the Atlanta Fed's price-to-income tracker, is at its highest point ever, making housing more expensive relative to incomes than even during the 2007 housing bubble, with costs now representing 68.5% of the median income, significantly higher than the traditional 30% rule of thumb.
The shortage of homes is estimated to be between 4.5 million and 7.2 million units. While politicians like Vice President Harris have pledged to build 3 million new homes in one term, this goal is ambitious given current construction rates and the existing deficit. Housing starts are around 1.2 million per year, but have been impacted by rising interest rates, leading builders to pull back since 2022.
The core issue lies with local zoning laws, which primarily govern what can be built. While federal and state governments have some influence, local zoning boards often determine building regulations. The Biden administration's "Pathways to Removing Obstacles to Housing" (Pro Housing) program aims to incentivize zoning changes by offering financial carrots, such as up to $10 million, to towns that modify their laws to allow for more housing. However, getting local buy-in remains a significant challenge.
Experts note a historical "building gap" and a recent trend where builders apply for permits but then do not proceed with construction. While a focus on boosting supply from the current administration is seen as positive, the long-term nature of construction and the local control over zoning mean that meaningful fixes will be a slow process, even with incentives from higher levels of government.
