Why Is There a Housing Shortage? 3 Key Reasons for Low Inventory in the US Market

The US housing market is defined by a severe shortage of inventory, with approximately half the number of homes for sale than what buyer demand requires. This chronic undersupply has created a strong seller's market, driving rapid price appreciation and creating significant challenges for buyers. The root causes are a multi-year deficit in new construction, changing homeowner behavior, and a rise in real estate investment. This article outlines the three primary factors contributing to the current low inventory levels.

Why Aren't Builders Constructing Enough New Homes?

The fundamental issue is a persistent gap between housing construction and population needs. For five decades before the 2008 crisis, US homebuilders constructed an average of 1.5 million homes annually. Since the recession, building has failed to recover to necessary levels.

To meet the demands of population growth and replace aging housing stock, the US requires about 1.5 million new housing units each year. Over the past eight years, this translates to a cumulative deficit of approximately 5.5 million homes. While construction is increasing, much of the recent activity has focused on multi-family rental apartments rather than single-family homes for sale, which does little to alleviate the for-sale inventory crisis. Closing this multi-million unit gap will likely take years.

Why Are Homeowners Choosing Not to Sell?

The shortage isn't solely a construction problem; it's also a supply chain issue at the homeowner level. Many potential sellers are choosing not to list their properties, a phenomenon known as being "mortgage-locked" or a reluctance to "trade up." Based on our experience assessment, homeowners are staying in their properties twice as long as they did 15 years ago.

Several demographic trends contribute to this:

• Aging in Place: Seniors are increasingly opting to remain in their current homes.
• Limited Upsizing Options: Families seeking larger homes find few available options and are deterred by competitive bidding wars.
• Financial Constraints: Even with significant home equity gains, income growth has not kept pace with housing costs, and some may find qualifying for a new mortgage more difficult than when they initially purchased.

How Has the Rise of Investment Properties Affected Supply?

The growth of the rental market has further reduced the number of homes available for purchase. Following the housing collapse, investors purchased a substantial number of properties at low prices. In the last decade, the number of renter-occupied housing units grew by 25%, while owner-occupied units slightly declined.

Favorable conditions, including historically low mortgage rates and high rental yields, have encouraged individual investors to purchase second properties to hold as rentals. When a property is converted to a long-term rental or a short-term rental (e.g., through platforms like Airbnb), it is removed from the for-sale inventory, directly exacerbating the supply shortage for traditional homebuyers.

The current market dynamics are a direct result of the 2008 financial crisis. While the situation is challenging, increased construction activity and thoughtful urban planning are key to a more balanced future. For buyers, this means preparing for a competitive market. For homeowners considering a sale, understanding your local market's inventory levels is crucial for timing your decision.