For the past several years, various organizations have called for policies to boost the number of homes built in the United States. These groups regularly characterize the U.S. housing market as facing a shortage, though they typically are referring to a market where the quantity supplied is less than some preferred measure, not a market where the quantity demanded exceeds the quantity supplied at the equilibrium price. Nonetheless, some groups even claim that the U.S. is experiencing both a housing supply and affordability crisis. While there seems to be a consensus that this supply deficit has been the primary culprit of the affordability crisis, there is still a vast spread of opinions on exactly how to define the “shortage.” And although these groups deserve credit for trying to quantify this shortage, the range of estimates they’ve produced also varies considerably.

For example, the National Association of Home Builders’ (NAHB) estimated a shortage of 1.5 million homes for 2021, while a study for the National Association of Realtors (NAR) estimated the shortage was 5.5 million. Freddie Mac, one of the two large housing government sponsored enterprises (GSEs), estimated the shortage was 3.8 million homes.[1] In 2022, the tech-based real estate firm Zillow estimated that “despite a pandemic construction boom, the U.S housing shortage grew to 4.5 million homes,” and said that the shortage was “mainly because of the increase in the nation’s family count and very sluggish construction activity in the decade preceding the pandemic.”

While virtually none of these groups formally estimate the optimal housing supply in a general (or even partial) equilibrium framework, some do construct reasonable statistical models to suggest what the supply of new homes should be compared to current figures. Freddie Mac’s model, for instance, includes household formation rates, current vacancy rates (the share of homeowner inventory that is vacant/​for sale), the existing housing stock, and a target vacancy rate of 13 percent. The NAHB, on the other hand, relies on a more parsimonious comparison of the difference between the current vacancy rate and “the ‘natural,’ or long-run average” vacancy rate. Thus, these two groups essentially assume that the market requires a sort of inventory buffer. While the NAR’s study compares long-term construction trends to current construction, its online “Housing Shortage Tracker” estimates the shortage for major U.S. metro areas by comparing the number of new construction permits issued to “every new job.”