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The United States is facing a significant housing shortage, estimated at 2.3 million homes as of the end of 2022. This deficit is a direct result of household formations consistently outpacing new construction for over a decade. While a pivot to multi-family building offers some relief, a return to a balanced market requires a substantial, sustained increase in construction activity to meet demand and address ongoing affordability challenges.
The core of the housing crisis is a simple imbalance: more households are forming than new homes are being built. Between 2012 and 2022, 15.6 million new households were formed. In that same period, builders started construction on only 13.3 million new housing units, creating a deficit of 2.3 million homes. This gap has been widening, fueled by a slowdown in single-family home construction in 2022 as mortgage rates surged. A mortgage rate is the interest charged on a loan used to purchase a property. The shortage is starkly visible in vacancy rates; the homeowner vacancy rate—the percentage of homeowner inventory that is vacant and for sale—fell to a record low of 0.8% by the end of 2022, indicating extremely tight supply.
| Metric | 2012-2022 Total |
|---|---|
| Household Formations | 15.6 million |
| Total Housing Starts | 13.3 million |
| Overall Shortage | 2.3 million homes |
The housing market shifted dramatically in 2022. As the Federal Reserve raised interest rates to combat inflation, long-term mortgage rates followed an upward trajectory. This significantly increased the monthly cost of homeownership, cooling the red-hot buyer demand seen in previous years. In response, homebuilder sentiment, as measured by the National Association of Home Builders/Wells Fargo Housing Market Index (HMI), plummeted from 83 in January 2022 to 31 by December. This lack of confidence directly impacted construction activity. While single-family home starts fell by 10.6% compared to 2021, completions reached a 10-year high as builders finished projects that had begun during the more optimistic market conditions of late 2021 and early 2022.
Faced with weakening demand for single-family homes, builders pivoted towards multi-family construction—buildings containing multiple separate housing units, such as apartment complexes. In 2022, multi-family starts jumped 15% year-over-year, comprising 35.1% of all housing starts, a level not seen since 2015. This shift is critical because it adds rental supply to the market, offering options for households priced out of buying. However, multi-family homes take an average of 15 months to complete, compared to about 7 months for a single-family home. This means the full impact of this building surge will not be felt until late 2023 and into 2024. Furthermore, based on our experience assessment, the vast majority of these new multi-family units are intended for rent, which does little to improve affordability within the for-sale market.
Closing the existing housing gap would require a historic and sustained acceleration in construction. If the rate of total housing starts (both single-family and multi-family) were to increase by 50% from the 2022 level—reaching approximately 2.3 million starts per year—it would take an estimated 2 to 3 years to close the 2.3 million home gap, assuming household formation rates return to their pre-2020 average. If builders were to focus solely on single-family homes, the rate of construction would need to triple to make up the 6.5 million unit deficit in that segment within a similar timeframe, a scenario considered highly improbable given current market conditions and labor constraints.
The dwindling supply of affordable new homes is a central component of the crisis. The proportion of new homes sold for less than $300,000 has collapsed, falling from 41% in the fourth quarter of 2019 to just 10% by the end of 2022. This rapid price growth, combined with higher mortgage rates, has dramatically increased the monthly cost of financing a home. This affordability squeeze has pushed many would-be buyers into the rental market, sustaining high demand for apartments and keeping upward pressure on rent prices, despite an influx of new multi-family supply.
The path to a more balanced housing market hinges on a sustained increase in construction across all segments. While the pivot to multi-family building is a necessary response to demographic and economic shifts, a long-term solution requires addressing the barriers to building affordable, for-sale homes. For buyers and renters in 2026, this ongoing imbalance means that competition for well-priced properties is likely to remain strong, underscoring the importance of thorough financial preparation and realistic market expectations.
