With home prices and rents hovering near record highs, and for-sale inventories and vacancies stuck near record lows, there is a significant housing shortfall. Most experts agree that it is this deficit that is at the root of the country’s affordability challenges. Measuring this gap is difficult, though, and estimates vary widely depending on the assumptions and methodologies used to calculate it (Figure 1).

Figure 1: Estimates of the Nationwide Housing Shortfall
 

The differences in these estimates can be traced back to their methodologies. The National Association of Home Builders’ (NAHB) estimate of 1.5 million units, the lowest on the list, calculates the difference between the current number of vacant units for-rent or sale and the total that would exist under ‘normal’ vacancy rates for each metro in the country, defined as the long-term average rates. The NAHB estimate is a sum of all US metropolitan areas, which may partly explain why it is lower. Unlike the NAHB number, the other two estimates also cover non-metro areas. NAHB’s methodology differs further by limiting the shortage calculation to vacant units for-rent or sale, excluding other types of vacant units such as seasonal or second homes.

Like the NAHB figure, Freddie Mac’s estimated 3.8 million unit shortfall is also based on how much lower the current vacancy rate is than ‘normal.’ However, there are notable differences in the two calculations, too. First, Freddie Mac’s estimate covers the entire US, not just metro areas. Second, unlike NAHB, Freddie Mac’s estimate includes an additional 0.4 million units for ‘missing’ households that did not form because of the shortage of housing units. Additionally, Freddie Mac’s estimate uses a single, nationwide gross vacancy rate for its ‘normal’ vacancy rate which includes second and seasonal homes and other vacant units, rather than separate vacancy rates for owner-occupied and rental properties.

The highest estimate on our list is from a report commissioned by the National Association of Realtors (NAR) which suggests a 5.5 million unit shortage of housing. Unlike either NAHB’s or Freddie Mac’s calculation, this estimate does not compare vacancy rates. Instead, NAR based the estimate on the impact of the net slowdown in the rate of housing construction since 2000. Specifically, NAR compared the number of new homes added in 2001-2020 (1.225 million/year) to the number of homes that would have been produced if the previous historical annual average construction rate for 1968-2000 (1.5 million/year) had held. Summing up this difference across 20 years, the shortfall in housing construction amounts to 5.5 million units by 2020.

One additional number, even larger than those on the list, highlights how households with the least resources are disproportionately constrained in this time of high housing costs. According to the National Low Income Housing Coalition’s (NLIHC) latest Gap report, there is a shortage of 7.3 million units of housing affordable to the nation’s 11 million renters with extremely low incomes, defined as those who earn up to 30 percent of the median income for their area, when accounting for units that are rented by a household with a higher income.

The alternative view provided by NLIHC underscores how simply building more homes to address the nation’s broader housing shortage may not be enough to address the lack of housing affordable to households with lower incomes. Building more new housing is necessary and will surely help alleviate pressures, particularly for higher-income renters and eventually for others as older units filter down the rent scale. But given the wide gap between housing that is affordable to the lowest-income households and that which the markets have been able to provide, overcoming our nation’s housing shortage in a way that fully addresses the affordability challenges faced by millions will require a concerted effort to not just add more units, but also more units affordable to the most economically vulnerable households.