The U.S. Housing Underbuilding Gap

The U.S. Housing Underbuilding Gap

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INSIGHTi

The U.S. Housing Underbuilding Gap
July 10, 2023
Economists have noted widespread tight housing supply conditions in the United States currently, leading
to high home prices and rents. The policy discussion surrounding low supply is often focused on the
supply of units affordable to lower-income households given that higher-income households may have
more choice even when prices and rents are rising. However, inventory, price, and construction data
suggest that supply is relatively low in the aggregate—even at lower price and rent points. For a
discussion of factors that could be contributing to low supply, see CRS Report R47617, U.S. Housing
Supply: Recent Trends and Policy Considerations, by Lida R. Weinstock. This Insight presents data on
residential construction over time to help quantify trends in overall supply and discusses estimates of the
underbuilding gap by various organizations.
Residential Construction
There are several metrics to measure the level of housing construction, including new permits, starts,
completions, units currently under construction, and private spending on construction. This Insight
focuses on housing starts (the number of housing units that started being built in a given period) as a
proxy for total residential construction.
Figure 1 below shows housing starts of all types divided by total population since 1980. Starts have
always been somewhat cyclical in nature, but this cyclicality was particularly pronounced during the
housing and financial crisis of 2007-2009. Combined housing starts fell quickly and by a large magnitude
during this period, then rose at a much slower pace in the years after, never fully recovering to pre-2007
levels. After a period of recovery and an acceleration in the pace of starts during the COVID-19
pandemic, starts fell in 2022. Additionally, rental and homeowner vacancy rates have trended downward
since the 2007-2009 crisis, indicating that lowered construction rates during this period were likely not a
result of ample stock or waning demand.
An additional facet to declining construction is declining construction of specific types of housing. For
example, the share of construction of “starter homes”—in this case, defined as single family homes of
1,400 square feet or less—has been trending downward over the past several decades. This alone does not
necessarily contribute to low supply of all units, but it may have negative consequences for specific
demographic groups or specific local markets.
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Figure 1. Ratio Housing Units Started to Population
1980-2022

Sources: CRS calculations based on Census Bureau, New Residential Construction Historical Data, Housing Units Started
by Purpose and Design; and Bureau of Labor Statistics (BLS), Current Population Survey.
Notes: Single family data are not disaggregated by for sale versus rent. Figure based on BLS civilian noninstitutional
population for those ages 16 and older. According to Census, a housing unit is started when excavation begins for the
footings or foundation of a building.
The Underbuilding Gap
Economists have referred to the difference between how many housing units currently exist and how
many units ought to exist (based on historical trends or on estimates of demand, ideal vacancy rates, or
household formation) by many different names, including the “housing supply gap,” “housing supply
shortages,” the “demand-supply gap,” the “underbuilding gap,” and “housing underproduction.” While
there may be subtle distinctions among the various terms, this Insight uses underbuilding gap as a catchall
term for any gap between the current and “ideal” (as defined in any specific methodology) supply of
housing units.
Housing economists across organizations have attempted to quantify the U.S. underbuilding gap through
various methods. Table 1 summarizes a few recent examples. Estimates vary widely (and are not always
comparable based on time frames or types of housing considered) but are still sizable across
methodologies and help quantify the extent of any aggregate supply issues. For comparison, on the lower
end of estimates, there was a gap of 1.55 million units in 2021—despite an uptick in starts in 2021—at an
average annual rate of 1.6 million that year (not population controlled). If correct, these estimates suggest
that a lack of affordability will remain a long-term issue until the underbuilding gap shrinks, which is
unlikely to occur without an acceleration in the rate of construction. The National Association of Realtors
(NAR) estimates that an annual pace of 2 million units produced per year would be needed to fill the gap
in the next 10 years.
Aggregate underbuilding gaps do not necessarily provide information on what type, size, or location of
housing is underbuilt. Certain estimates, such as the National Low Income Housing Coalition affordable
housing gap metric, provide information on the shortfall in certain types of housing. According to

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this analysis, as of 2021 there was a gap of 7.3 million rental units affordable and available to renters with
incomes at or below the federal poverty guideline or 30% of area median income, whichever was greater.
Table 1. Selected Estimates of Aggregate Underbuilding Gaps
Source
Gap Estimate
Year
Data Sources
Methodology
Freddie Mac
3.8 mil ion units
2020
Current Population
Based on a comparison of current stock
Survey-Annual Social and and a target stock calculated by dividing
Economic Supplement,
the target number of households by the
Housing Vacancy Survey
target occupancy rate
National
5.5 mil ion units
2020
Survey of Construction,
Comparison of long term (1968-2000)
Association of
Housing Vacancy Survey
average residential unit completions with
Realtors (NAR)
completions from 2001 to 2020
Moody’s
1.55 mil ion units
2021
Census Bureau, Moody’s
Comparison of current vacancy rate
Analytics
(650,000 for sale and
Analytics
with target vacancy rate (defined as 4%)
900,000 for rent)
Up for Growth
3.79 mil ion units
2019
American Community
Difference between target number of
Survey Public Use
housing units (calculated by multiplying
Microdata Sample
the sum of households plus missing
households by the sum of 1 plus the
target vacancy rate) and existing units
that are renter or owner occupied
Source: Freddie Mac, NAR, Moody’s Analytics, Up for Growth.
Notes: Sources included in this table are not all inclusive. For example, NAR includes alternative methodologies in its
analysis as well as estimates for gaps for alternate time frames and types of units.

Author Information

Lida R. Weinstock

Analyst Macroeconomic Policy

Disclaimer
This document was prepared by the Congressional Research Service (CRS). CRS serves as nonpartisan shared staff
to congressional committees and Members of Congress. It operates solely at the behest of and under the direction of
Congress. Information in a CRS Report should not be relied upon for purposes other than public understanding of
information that has been provided by CRS to Members of Congress in connection with CRS’s institutional role.
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