The supply gap in housing has been a consistent topic of conversation over the recent years of housing-market challenges. The idea that the U.S. is short nearly 4 million homes has been stated over and over, but what does this figure truly mean, and how can the industry overcome it?
According to a new report from Realtor.com®, more than a decade of underbuilding is responsible for the deficit, which persists despite recent upgrowths in construction.
“The oft-discussed housing supply gap tipped the housing market off-balance over the past 12 years,” the report stated. “Home prices started to rise in earnest in 2012, and continued to do so through 2024, suggesting that housing demand has outpaced supply over this time.”
While 2024 saw growth in the construction sector, with Realtor.com finding that home completions rose to 1.6 million—the highest level in almost two decades and the first time since 2016 that construction outpaced household formations—the report stated that this uptick was driven by an increase in both single and multifamily construction.
Despite significant growth, the U.S. still faces a home shortage totaling 3.8 million, which Realtor.com noted is the third-largest annual gap since 2012. As Realtor.com Chief Economist Danielle Hale noted, “While builders made strides last year, the scale of the historic housing shortage, paired with strong pent-up demand, meant that new supply couldn’t fully close the nearly 4 million-home gap.”
With the current pace of construction, Realtor.com found that it would take an estimated 7.5 years to close this gap. Regionally, the South would catch up in three years, the West in 6.5 years and the Midwest in 41 years—with the Northeast making little to no progress.
As previously mentioned, the pace of construction beat out the pace of household formations in 2024. Realtor.com found that household formations were at less than 1 million in 2024, which is the slowest annual pace seen since 2016. This is compared to the 1.36 million houses started during the year.
Despite this rise, however, the report stated that total housing starts were at their lowest level since 2020. This is due to a slowdown in multifamily construction and a significant uptick by builders in the single-family sector in order to address the existing-home shortage. In fact, single-family starts grew to the second-highest level since 2007.
As household formations lacked in 2024, Realtor.com noted that this particular downfall was most prominent among the younger generations of millennials and Gen Zers, with the report estimating that 1.6 million members of these generations not forming households due to market challenges, namely affordability.
The millennials and Gen Zers of today are not statistically able to afford the country’s median-priced starter home, the report explained. The minimum recommended income to purchase a starter home is currently estimated at $94,000, which is more on the level of the income seen among 35- to 44-year olds. That’s why many members of the millennial and Gen Z generations continue to rent or live at home with family.
Data from the National Association of REALTORS®’ 2024 Profile of Home Buyers and Sellers reflects this, finding that the average age of first-time homebuyers had risen to an all-time high of 38 years old.
“Young households are particularly feeling the strain, as buying a home on an early- to mid-career salary is increasingly out of reach for many,” commented Hale. “Though a rise in both multi- and single-family construction offered some relief amid low existing inventory, addressing the gap will take sustained effort and smart policy.”
Taking a look regionally, Realtor.com found that the South—which is frequently measured as one of the more affordable regions of the country—has seen more improvements in its housing gap, shrinking it by 24.9% in 2024. Despite this, the region still has the largest gap by volume at 1.15 million units needed.
The West has also largely shrunk its gap by 13.4% due to a smaller amount of household formations and a rise in construction. The Midwest narrowed its gap as well, but only by a modest 2.4%.
On the other end of the spectrum, the Northeast has seen its gap grow by 1.2%, with the region in need of 1.04 million units.
| 2024 | Northeast | Midwest | South | West |
| Household Formations (Ths.) | -28 | 191 | 552 | 283 |
| Housing Starts (Ths.) | 125.3 | 184.8 | 751.2 | 302.8 |
| Pent-up Demand (Ths.) | 580 | 195 | 660 | 268 |
| Supply Gap (Ths.) | -1,044 | -843 | -1,150 | -830 |
| Annual % improvement | 1.2% larger | 2.4% smaller | 24.9% smaller | 13.4% smaller |
| Years to Close Gap | Growing | 41 years | 3 years | 6.5 years |
Hale noted that the housing gap originates from many different challenges throughout the construction industry, including tariffs, finding land to build, labor and affordability. The recent slowdown in the housing market has also created uncertainty for builders, which is reflected in recent measures of homebuilder confidence.
“Builders have some question marks on demand, especially if they’re in an environment where they’re thinking about having to push costs to make up for rising material costs,” she explained. “Even though we’ve seen building do very well in the last few years, builders are going to face some near-term headwinds.”
Amidst the release of the report, Realtor.com has announced a new national campaign advocating for solutions that expand housing supply: Let America Build. The campaign specifically advocates for solutions that cut through red tape, restrictive zoning and outdated regulations that are constricting the ability to build the homes America needs. The initiative calls on lawmakers at every level to make pro-building choices.
Realtor.com noted that it aims to join forces with some of the biggest industry leaders, including builders, policymakers and housing advocates to push for actionable change that will help create more homes—faster.
“America’s housing shortage is holding back economic growth, driving up costs and making it harder for millions of families to find a home,” said Damian Eales, CEO of Realtor.com. “Through Let America Build, we’re rallying the right voices to push for real solutions that will unlock supply and make homeownership more attainable. That’s a win for families, communities and the entire economy—because when housing works, everything works.”
For the full report, visit https://www.realtor.com/research/us-housing-supply-gap-2025/.
