Housing Supply Trends and Policy Considerations:

At the national level, several measures indicate that the housing supply may be relatively low. Local housing market conditions can vary substantially, and national indicators do not necessarily accurately reflect conditions in a particular local market. These national indicators seem to suggest, however, that supply constraints may be an important factor in many housing markets across the country. A few key points are summarized below.

• When accounting for population, the housing stock (total number of housing units) remained largely unchanged between 1980 and 2022.
• Across rental and owner-occupied markets, vacancy rates have decreased since the housing market crash and financial crisis of 2007-2009. Vacancy rates dipped further during the COVID-19 pandemic and hit several-decade lows in 2022.
• The number of single-family homes available for sale each year has trended downward since 2000, particularly after the housing crisis of 2007-2009.

• New housing units, as measured by total population-controlled housing starts (housing starts divided by total population), have trended downwards in recent decades, most notably after the 2007-2009 crisis. Total starts rose at a relatively slow pace in the years after, never recovering to pre-2007 levels. (Starts for multifamily rental properties increased over this period but represent a small portion of total starts.)
• Several research organizations have found evidence of supply or underbuilding gaps in the U.S. housing market, although estimates of the number of units needed to close this gap differ.

Relatively low housing supply, especially when demand for housing is strong, can cause undesirable frictions in the housing market. One of the main results of low supply has been decreasing affordability. Prices for both homeowners and renters have increased over recent decades, even when controlling for inflation and income. Rental and owned-housing affordability indexes have also shown a trend of decreasing affordability in the past decade, and cost burdens are fairly widespread for those at or below median income. Additional issues may arise at the local level, such as housing shortages based on job growth or demographic changes in a particular location, and individual preferences may be harder for the housing market to meet due to supply or price constraints.

Identifying the main causes of lagging housing supply can be important not only in understanding the issue but also in considering potential policy options to increase supply without increasing prices. In recent decades, increasing regulatory costs, restrictive zoning and land use, and changing demographics have contributed to supply issues. The housing market crash in 2007 significantly impacted supply, with the construction industry (and therefore new housing construction) never fully recovering and therefore contributing to the underbuilding gap.

In more recent years, disruptions from the COVID-19 pandemic and rising inflation have increased the costs of inputs to construction, and policies to counteract rising inflation have increased mortgage financing costs. On a longer-term horizon, climate change may be a risk to the housing supply should natural disasters increase in frequency or intensity, as they have in recent years.

Given the specific challenges facing housing supply, policy considerations may differ notably at the local level and national level. Policymakers may be equally interested in local and national supply issues and policies. Further, many of the supply constraints discussed in this report are regulated at the local level.

To the extent that the federal government has policy authority in national and local housing markets, Congress may have influence in shifting the housing supply curve when it comes to the inputs to building new units and refurbishing existing ones, potentially by incentivizing local zoning reform and construction, among other things.

For related issues and background on the housing market, see CRS Report R47628, Housing Issues in the 118th Congress, coordinated by Katie Jones.