Suburban land use contrasted with active multi-family construction, highlighting supply constraints.
United States, August 26, 2025
The United States faces an estimated shortfall of about 4.7 million housing units, driven by restrictive zoning and compounded by financing, labor and materials constraints. While upzoning can lower regulatory costs and enable denser development, experts warn it won’t automatically trigger large-scale building without cheaper construction credit, more skilled workers, lower input prices, and productivity gains. Policy proposals include public financing, federal loan supports, tax incentives, workforce training, tariff adjustments, and income supports for low-income renters. A coordinated mix of supply- and demand-side measures is needed to meaningfully close the gap.
Key point: The United States faces a large and growing housing shortfall that hurts affordability, mobility, and the economy. A major property analytics firm estimates there are 4.7 million fewer housing units than families in the country. Advocates pushing to loosen local land rules see that change as central, but experts say fixing zoning alone will not close the gap. Multiple constraints — zoning, financing, skilled labor, and building materials — must be addressed together.
The housing shortfall has grown as construction has trailed demand over the past two decades. New homebuilding plunged after the late-2000s crash and never fully regained the earlier pace, even during strong economic periods. The shortage is most acute where job opportunities are plentiful, which pushes up rents and housing prices, fuels displacement, and slows economic mobility and growth. Some observers call this the single biggest economic problem in the country today.
A loose network of groups and thinkers known for promoting more housing argues that much of the shortage is mandated by law. Under current rules, apartment buildings are effectively barred on about 75 percent of residential land in many places. Regulations also demand large lot sizes and parking spaces, which make multi-family buildings costly or impossible in many neighborhoods. These constraints work like a supply cap: when land can’t be used for denser housing, fewer units are built.
The movement pushing for legal change has driven reforms in several states and cities, and a rising number of policymakers are debating upzoning and other land-use reforms. Supporters emphasize that removing unnecessary rules is relatively inexpensive compared with subsidies and can raise municipal revenues by enabling more development and tax base growth.
Even after making it legal to build more homes, construction will only follow if developers can make projects financially viable. Building housing is a risky, illiquid business that typically uses heavy debt and relies on concentrated bets on single assets. Developers need adequate expected returns to move forward. Some research suggests regulations account for a large share of project costs — one report puts that number at about 40.6 percent for multi-family projects — so easing rules can lower the minimum rent or sale price needed for a project to pencil out. But other constraints can keep builders sidelined.
After the housing crash, banks and regulators made construction lending safer and more expensive. The dollar value of residential construction loans fell sharply, with lenders pulling back in the years after 2008 and through the mid-2020s. One industry measure shows construction lending down around 55 percent between 2008 and mid-2024. Low interest policies for long stretches helped, but when central bank policy tightened starting in 2022, construction activity slowed again. Mortgage rates and long-term bond yields also affect builders’ costs and buyer demand, making financing a central factor.
The construction sector lost nearly 1 million jobs between 2007 and 2011, and many workers did not return. Recruitment of younger tradespeople has been difficult, and lower immigration of skilled workers has tightened the labor pool. Labor shortages raise wages and delay projects. On the materials side, prices for lumber and other inputs rose after a wave of mill closures and trade barriers, and tariffs on lumber and metals added to costs. These supply-chain and input-price changes have made building more expensive and slower.
Building starts data show a mixed picture. A recent monthly snapshot reported a seasonally adjusted annual rate of about 1,428,000 housing starts, up a bit month-over-month and year-over-year, with multi-family starts driving the bounce. But building permits declined the same month to about 1.354 million units, suggesting the uptick in starts may not sustain. Builder sentiment indexes have remained weak, with readings well below the level that signals healthier conditions. A sizable share of builders have been using sales incentives and even cutting prices.
Experts point to several tools that together could support more building and more affordable homes:
Increasing supply will not alone make housing free or universally affordable. It will never be profitable to sell shelter to households with no ability to pay. That means any full agenda must include ways to raise low-income families’ ability to afford homes, such as cash transfers, rental subsidies, or expanded social housing. Combining supply-side reforms with targeted supports offers a clearer path toward affordability and stability.
Loosening land-use rules is an important piece of the solution, but it is not a silver bullet. To close a gap measured in the millions of units, policymakers must tackle financing, labor, materials, and demand-side supports together. Cities can start by stopping rules that needlessly block housing, while states and the federal government can provide credit, tax incentives, and workforce and trade policies that make building faster and cheaper.
Recent analysis estimates about 4.7 million fewer housing units than families across the country.
Zoning and land-use rules are a major factor, especially rules that bar apartment buildings on most residential land and require large lots and parking. However, zoning interacts with other constraints like financing, labor, and materials.
Construction fell sharply after the crash and did not return to prior peak levels. Reasons include tighter construction lending, loss of skilled workers, higher materials costs, and rising regulatory burdens, not just zoning changes alone.
Making denser housing legal lowers costs and can increase production, but developers still need financing, labor, and materials. If building becomes less profitable because of lower expected rents, developers may reduce activity unless other supports are in place.
Options include public or municipal financing programs, federal loan guarantees, tax incentives like accelerated depreciation, workforce training, expanded skilled immigration, tariff reductions on key materials, and measures to boost construction productivity.
| Feature | Why it matters | Recent data or note |
|---|---|---|
| Supply gap | Shows scale of shortage and pressure on affordability | Estimated shortfall of about 4.7 million units |
| Zoning limits | Restricts where denser housing can be built | Apartment buildings effectively prohibited on ~75% of residential land in many areas |
| Regulatory cost share | Regulations can make projects much costlier | About 40.6% of multi-family development costs can be regulatory |
| Financing pullback | Lenders tightened after the crash, reducing construction credit | Construction lending dollar value down ~55% from 2008 to mid-2024 |
| Labor shortage | Fewer skilled workers slow or cancel projects | Nearly 1 million construction jobs lost 2007–2011; many not returned |
| Materials and tariffs | Higher input prices raise build costs | Price spikes after mill closures and trade measures; tariffs increased costs |
| Market signal | Starts and permits show short- and medium-term direction | Recent month: starts at ~1,428,000 annualized; permits down to ~1,354,000 |
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