The US Housing Shortage: Causes, Impacts, & Solutions

What’s causing the current US housing shortage? What are the different ways it can be handled?

An unprecedented housing shortage is undermining Americans’ quality of life and the health of the economy. It’s created a housing affordability crisis for both buyers and renters and exacerbated homelessness.

Continue reading as we explore potential solutions as well as the potential impact of Trump administration policies.

The US Housing Shortage

The United States is in the throes of an unprecedented housing shortage of up to 4.5 million fewer homes than needed, which inhibits the quality of life for millions of people and undermines communities and the broader economy. This severe shortage is creating an affordability crisis, driving up rents, and exacerbating homelessness. It’s been years in the making, and experts are divided on whether it will improve in 2025.

Despite a pandemic-era construction boom, the US has failed to keep pace with demand. In 2022, while 1.4 million homes were built, the number of U.S. families increased by 1.8 million, further exacerbating the deficit.

The Impacts of the Housing Shortage

The US housing shortage has far-reaching effects on individuals and the economy:

• Unaffordable housing: Soaring home prices and rents make it increasingly difficult for many Americans to secure affordable housing. Studies show that high rents drive homelessness, which reached a record high of 770,000 people in 2024.
• Financial strain: The median U.S. renter spends around 29.1% of their income on rent; 22.4 million households spend more than 30%, and 12.1 million spend more than 50%, according to a 2024 Harvard study.
• Community stability: High housing costs force families to move frequently, disrupting education and social connections. They can also make it hard for communities to retain essential workers such as firefighters, teachers, and nurses, who can’t afford to live where they work.
• Inflation: Housing costs account for 36.3% of the Consumer Price Index, significantly contributing to overall inflation and attitudes about the economy.
• Economic growth: The shortage hampers economic activity related to moving and homebuilding (the latter typically contributes 3% to 5% of GDP).
• Labor market challenges: Businesses struggle to attract workers in areas with high housing costs, impacting local economies.

(Shortform note: The housing slump is also affecting the home goods industry because it’s leading to a decline in home renovation projects. The decrease means there are fewer new homeowners purchasing furniture and home decor, while existing homeowners are postponing major upgrades.)

Right-Leaning Proposal

• Deregulate and streamline permitting processes to lower construction costs and speed up private sector development—for example, loosen zoning restrictions in the suburbs.
• Open federal lands for housing construction to increase supply. The federal government owns about 28% of US land, although the percentage is much higher in some states—for instance, 63% in Utah and 80% in Nevada. Developers would have to commit to keeping some of the new housing affordable to the local population.
• Expand tax incentives to encourage private investment.

Left-Leaning Proposal

• Expand the Low-Income Housing Tax Credit (LIHTC), which encourages private investment in affordable rental housing for low-income households.
• Provide more government funding for public housing and rental assistance. For example, in May the Biden administration announced $5.5 billion in federal grants to states to develop affordable housing and address homelessness and housing costs.
• Expand rent control measures in high-cost areas to protect existing tenants.

Centrist Proposal

• Reform zoning laws and promote public-private partnerships to allow for higher-density housing and mixed-use development.
• Reuse commercial properties for residential purposes, particularly in light of changing work patterns post-pandemic.
• Invest in infrastructure and public transportation to make more areas viable for housing development.

What’s Already Being Done

Current efforts to address the housing shortage at various levels of government include: 

States

• Maryland’s Housing Expansion and Affordability Act aims to address the state’s 96,000 housing unit shortage by incentivizing affordability and targeting construction where it’s most needed.
• Oregon passed a law allowing fourplexes in large cities and duplexes in mid-size cities without special permission.
• Utah and Massachusetts are incentivizing multifamily housing construction near public transit.
• California and Florida are making it easier to build residential housing in retail zones.
• Maine and Vermont are facilitating the construction of accessory dwelling units (ADUs).

Cities

• Minneapolis updated its zoning laws to allow for more apartment construction near commercial areas and transit hubs.
• Salt Lake City implemented a rezoning initiative that: allows denser housing on single-family lots, increases height allowances for multifamily housing, and streamlines permitting for housing projects.
• Portland modified land use regulations to enable the construction of more duplexes, triplexes, and fourplexes, and to promote diverse and affordable housing options.
• Fremont, California created a multifamily zone with reduced minimum lot setbacks, greater maximum lot coverage, and lower on-site parking standards.
• Houston reduced minimum lot sizes, enabling the construction of 80,000 townhouses and increasing the availability of starter homes.

Federal Government

• The Biden-Harris administration proposed a $20 billion innovation fund to support local housing supply solutions.
• The “Stop Predatory Investing Act” aims to remove tax benefits for large investors acquiring single-family rental homes.
• The “Preventing the Algorithmic Facilitation of Rental Housing Cartels Act” seeks to crack down on algorithmic rent-setting software.

The Trump Administration

Experts say a second Trump administration could have mixed effects on the housing shortage. Based on recent statements and past policies, the administration’s approach could include:

• Deregulation: Trump has emphasized reducing government oversight, which could lead to streamlined zoning laws and modified federal housing programs but reduced consumer protections.
• Opening federal lands: Trump’s campaign proposed opening up large tracts of federal land for housing construction to increase supply. 
• Investment incentives: Changes to tax policies and investment rules could attract institutional investors to the residential market, potentially increasing housing supply.
• Tariffs: If Trump imposes or increases tariffs as promised, the price of construction materials (especially imported lumber) could rise, leading to higher prices for new homes. However, an increase in domestic materials production could offset the need to import materials.
• Deportation of immigrants: Documented and undocumented workers play a major role in the construction industry, which already faces a labor shortage. Trump’s proposal to mass-deport immigrants could raise construction and renovation costs.
• Tax cuts: Trump’s tax cut policies could increase housing demand and, consequently, prices. Also, the Fed may be reluctant to cut interest rates because a combination of tariffs and tax cuts could fuel inflation. 

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