The National Association of Realtors says the current state of the housing market is absolutely “dire,” the consequence of a housing shortage 30 years in the making.
According to the lobbying group, construction of long-term housing fell 5.5 million units short of historical levels over the past 30 years.
The NAR is calling for a “major national commitment” to build more housing of all types by expanding resources, addressing barriers to new development and making new housing construction an integral part of a national infrastructure strategy.
The report, authored for the NAR by the Rosen Consulting Group, highlighted a “chronic shortage of affordable and available homes [needed to support] the nation’s population,” noting the recent lack of new construction and a prolonged underinvestment in those affordable units as the main culprits.
From 1968 to 2000, the total stock of U.S. housing grew at an average annual rate of 1.7%. In the past 20 years, the U.S. housing stock grew by an annual average rate of 1% — and only 0.7% in the last decade.
In fact, coming off the Great Recession, new home construction in the U.S. between 2010 and 2020 fell 6.8 million units short of what was needed, the report said.
Residential fixed investment (RFI) — the sector of economic activity that accounts for housing construction and renovation — accounted for approximately 5% of the country’s total gross domestic product between 1968 and 2000. In the past 12 years, though, RFI accounted for only 3% of the country’s gross domestic product. This shortfall in RFI, the NAR reported, translated to a $4.4 trillion gap in housing market investment from 2000 to 2020.
Existing-home inventory at the end of April totaled just 1.16 million units, down 20.5% from the prior year.
In looking at underbuilt, major U.S. metros, the New York-Newark-Jersey City metro had an underbuilding gap of 148,650 units in the past nine years — the largest gap in the country, the study claimed. That’s followed only by the San Francisco-Oakland-Hayward metro, which reported a gap of 113,200 units; and the Riverside-San Bernardino-Ontario, California metro, which reported a gap of 107,700 units.
“There is a strong desire for homeownership across this country, but the lack of supply is preventing too many Americans from achieving that dream,” said Lawrence Yun, NAR chief economist. “It’s clear from the findings of this report and from the conditions we’ve observed in the market over the past few years that we’ll need to do something dramatic to close this gap.”
Specifically, NAR President Charlie Oppler said adequate increases in housing construction this decade would add an estimated 2.8 million American jobs and $50 billion in nationwide tax revenue.
“A number of factors from the past 20 years are responsible for the massive housing investment gap we see in America today, but what’s important now is that we find solutions that will get us out of this crisis and provide more stability in future markets,” Oppler said. “Additional public funding and policy incentives for construction will very clearly provide huge benefits to our nation’s economy, and our work to close this gap will be particularly impactful for lower-income households, households of color and millennials.”
In order to fill the underbuilding gap in the next 10 years, the NAR estimated that more than 2 million housing units would need to be built per year – an increase of more than 700,000 units per year relative to the pace of housing production in 2020.
Several potential policy changes were offered up by NAR in the report, including addressing the large shortages of capital for the development of affordable housing by expanding resources and maximizing the potential of existing programs, incentivizing shifts in local zoning and regulatory environments to increase the quantity of developable residential space, and increasing housing supply by promoting conversions of underutilized commercial space.
Oppler added that addressing the national underbuilding gap in the housing market will require a “coordinated approach” to the planning, funding and development of infrastructure.
As part of a $1 trillion national infrastructure plan, President Biden has earmarked $318 billion toward the construction and preservation of affordable housing.