Data Dig : Sizing The Housing Supply Shortfall

Housing is a data intensive topic. Sound housing policy decisions will emerge only from accurate data properly interpreted. So, here’s another Data Dig.

As we wrote recently, the nearly universal prescription to improve housing affordability is to increase the supply of housing. More supply, the housing medics suggest, will lower home prices in obedience to the fundamental economic idea of supply and demand. To begin examining the prescriptions, we explore in this article the wide range of research and reporting on the size, if any, of the housing shortfall. We also challenge the reported shortfall numbers and the methodology by which the numbers are calculated.

A Wide Range of Estimates

Banks, trade groups, academics, real estate websites, and likely many other interest groups have published estimates of the volume of the purported housing shortage. In late 2025, the Congressional Research Service compiled estimates from 2023 through 2025. Moody Analytics surveyed (free, registration required) and summarized the housing shortage research a bit earlier in 2025.

• The National Association of Home Builders estimated in late 2022 a “structural housing deficit” of 1.5 million units, but predicted that the deficit would disappear as early as 2025 but no later than 2030. (We will not rely on the NAHB to build our brackets for the next March Madness.)
• An October 2025 report from Goldman Sachs concluded that “fixing the [housing] shortage and restoring affordability will require the addition of around 3-4 million housing units[, ] about 2% to 2.6% of the current housing stock”.
• Freddie Mac estimated for the latter half of 2024 that the nation needed 3.7 million additional homes.
• Earlier this year, Realtor.com reported a shortfall of roughly 4.0 million homes for rent and sale combined.
• As of 2023, Zillow gauged the housing under-supply at 4.7 million homes.
• Another snapshot of housing by The Brookings Institution put the shortage at 4.9 million in 2023.
• The National Association of Realtors commissioned a report in 2021 that found the housing supply gap to fall between 5.5 million and 6.9 million units, roughly four times as large as the NAHB estimate in the first bullet of this list.

The roughly four-fold difference between the lowest and highest estimates above is reason enough to wonder whether any reliable reckoning can be made of the discrepancy, if any, between housing need and supply. The huge range of guesses, which seems an accurate word choice, gives us reason to examine the means by which the guesses were made.

Understanding the Shortage Estimates

In nearly every facet of living, methodology matters. Different methodologies produce divergent, sometimes widely divergent, outcomes. The housing supply research is an example of the impact of measurement methodology on measurement outcome.

Most of the research on housing supply builds upon one foundational notion. The research sets a premise that the percentage of unoccupied housing (i.e., the vacancy rate) is a reliable proxy for the amount of housing demand that is unfulfilled. The researchers compare vacancy rates measured by the Census Bureau’s American Community Survey. Comparing the survey results from 2005 when the vacancy data first was collected through the ensuing 21 years, the research finds a decline in vacancy rates for rented and owned homes.

From the rental vacancy peak of 8.4% and owned-home peak of 2.7% to the most recent 2024 rate data, the decline was 2.7 and 1.7 percentage points, respectively. The research posits that the vacancy rates declined because insufficient new housing supply was delivered during that time.

Put another way, the housing under-supply research does not directly measure housing demand. Accurately measuring demand is understandably difficult, although measuring supply is done well by many private and governmental organizations. The housing supply research infers demand and secondarily infers under-supply from the descent in vacancy rates from 2005 through 2024.

From the inference of under-supply, housing industry economists, academics, public interest groups, and media make another leap. They conclude that the retail cost of housing in rent and home sale prices has risen dramatically since the pandemic because housing supply is inadequate. If supply rose, the argument continues, rents and home prices would decline. The argument is made so often and so summarily that no doubt seems possible.

Call us contrarian. We are doubtful.

Rental and Owned-Home Vacancy Rates Are Not Equivalent

We begin our challenge of the under-supply orthodoxy with the contention that rental vacancy and owned-home vacancy reflect different variables in the housing economy. The rise and fall of each vacancy rate may share common economic influences, but independent factors also play a role. The differences may be one reason for the wide range of housing shortage estimates and may also undermine the reliability of all the estimates.

• Rental housing is owned by investors. Rental housing is created to deliver an investment return over an investment horizon of years. Supply rises when investors sniff attractive yields often because the vacancy rate is low. Conversely, when rents do not deliver an attractive profit, new construction shrinks and supply tightens.
• For-sale housing also is constructed for a profit, of course, but profit is not the only driver of construction volume. Home builders, especially the publicly traded builders, often sacrifice profit margin to sustain sales pace. Maintaining unit sales volume, even at lower profit, preserves the cash flow a building company needs to pay its fixed costs. Even when new home sales prices are flat or declining, new home supply may not diminish.
• The elasticity of supply in the rental and sales housing markets also varies markedly. The variance begins at ground level. A multi-family rental project commences with a multi-million dollar investment in land and land development. The carrying cost of this investment compels the project owner to construct all the rental units as quickly as possible. Single-family builders often purchase lots in small quantities month-to-month or quarter-to-quarter. These builders manage lot inventory carefully, have an overall lower land carrying cost, can reduce land inventory quickly through sales incentives, and can even defer new lot purchases when completed home inventory rises unfavorably.
• Assuming fully entitled land, a multi-family rental construction project is permitted all at once usually, takes much longer to build than a single-family home, requires millions of dollars of capital, and delivers a large volume of housing units all at once or nearly so. A single-family home typically is permitted independently of any other home, is constructed in four to six months, requires a capital investment of a few hundred thousand dollars at most for the median-priced home, and delivers one housing unit. One multi-family rental project spikes supply that may take many months to absorb. One single-family home build has no noticeable impact on supply.
• Because single-family home construction is so much more granular than multi-family construction, a single-family builder can adjust much more easily the volume of supply it creates. The number of permits pulled or homes started is easily adjusted month-to-month or even more quickly. Multi-family investors and builders have much less flexibility. This difference in flexibility necessarily appears as a difference in the rental and owned-home vacancy rates.
• When home ownership affordability is constrained, the ownership-denied households typically rent, reducing rental vacancy but increasing owned-home vacancy. When rental affordability is constrained, the rent-denied households downgrade, leaving rental vacancy unchanged. Only as a last resort does a rent-challenged household consolidate with family or friends, increasing rental vacancy. If the economic forces creating affordability constraint affect equally aspiring homeowners and aspiring tenants, rental vacancy is not likely to increase as much as owned-home vacancy. Rental vacancy may even decline as owned-home vacancy rises because would-be homeowners do not vacate their rental housing.

By conflating rental and owned-home vacancy rates, the housing supply research may be blending data in a way that undermines the supply shortage conclusion. The mixture may obscure the dominance of rental or for-sale housing in the supply picture. Investor driven bursts of multi-family construction may mask ongoing single-family supply inadequacy. The muddling likely is hard to measure but may explain, at least in part, the wide range of housing under-supply estimates.

Housing Is Not National

Lack of data granularity is another shortcoming of the vacancy rate methodology used to estimate housing supply. Although the Census Bureau American Community Survey does collect housing data by census tract (an area populated with fewer than 10,000 people), the housing shortage reports use a nationwide aggregate vacancy rate. Any useful analysis of housing supply must examine supply, demand, demographics, and other factors with the same narrow geographic focus as buyers and sellers. (The Moody’s Analytics work mentioned above implements appropriate granularity to assess housing supply imbalance (or balance in some metros).

More on Housing Supply

In our next post, we will identify and discuss explanations for the vacancy rate data trend since 2005, other than the claimed housing shortage. Other explanations are plausible, we think. Assessing the accuracy and size of the housing shortage claim is important to ensure that housing policy attention is given to the true source(s) of housing unaffordability.