So, what’s the biggest factor impacting housing inflation?
No, it’s not single-family to rental conversion, Airbnb, or landlords. Nor is it builders who choose to build only McMansions (they don’t; local policies dictate most housing types) or a lack of funding for those most in need. While mortgage rates are at a generational high, rates magically falling to 4% would not in itself bring balance to our housing market.
The reality of our housing challenge is the critical lack of supply. For far too long, we’ve been told that our housing affordability challenges are simply a lack of funds for those in need. Local, state, and federal policymakers accepted this to be true, and curated our housing policy discussion at all levels, to everyone’s detriment, by focusing almost solely on money, completely ignoring the supply side of the equation.
Last month, Up for Growth released its annual Housing Underproduction report, shedding light on the scope of the nation’s housing supply shortage. Today, the United States is a staggering 3.9 million housing units short of where it needs to be, more than double the 1.86-million-unit deficit from 2012.
And it’s not just that the housing deficit is growing, it’s also spreading. This year’s report observed the housing deficit burden is shifting to the suburbs and small towns.
There is a plethora of reasons the housing deficit has more than doubled over the last decade, but at its core, it is because it is simply too difficult to build the needed, new housing the market demands in many growing communities.
Looking at the states where zoning reform efforts are expected to be near the top of the legislative agenda next year:
- Arizona’s 120,000-unit housing deficit is nearly double its annual housing production of 61,000 units (2022). The greater Phoenix area, the nation’s 9th most undersupplied market, is responsible for nearly 80% of the state’s housing deficit (95,300 units).
- Colorado’s 101,000-unit deficit is double its annual housing production of 49,000 units (2022). The greater Denver area is responsible for nearly half of the state’s housing deficit, with a housing deficit of more than 49,500 units.
- Georgia’s 138,000-unit deficit is 1.79 times its annual housing production of 77,200 units (2022). The state’s housing shortage is felt most in the greater Atlanta area, the nation’s 8th most undersupplied market. At more than 105,000 units short, the Atlanta area is 76% of the state’s total deficit.
- Minnesota’s 106,000-unit deficit is 3.42 times its annual housing production of 31,000 units 2022). With a 76,500-unit deficit, the greater Minneapolis-St. Paul area, the 12th most undersupplied market, represents more than 72% of the state’s housing shortage.
Despite what supply skeptics, NIMBYs, and local control die-hards will tell you, it is all about the lack of supply. Looking at the figures above, the size of the challenge is much greater than many can fathom.
Arizona’s deficit is roughly double its annual production. For Minnesota, it’s nearly 3.5 years of production.
It’s clear that the status quo regulatory framework – the one that helped to foster the housing crisis – is not equipped for the challenge. As Minneapolis has shown, if you want to address housing inflation, the best thing to do is to add units. And to do that, legalizing needed housing is the best solution.
Nick Erickson is the executive director of Housing Affordability Institute.