Home builders have gone into overdrive this year in the Twin Cities. Construction cranes tower over nearly every corner of the metro, and crews are pouring foundations as fast as cities can issue permits.

Still it's not enough, and hasn't been for more than a decade.

The housing shortage in the Twin Cities is now the worst in the nation, topping even high-demand metros such as Los Angeles, Seattle, Denver and Austin, Texas. Last year a mere 4.6% of all for-sale and rental housing in the metro was vacant, according to a new analysis of U.S. census data of the nation's 56 largest metros by the Minnesota Population Center.

That distinction will come as no surprise to anyone who has tried to buy a home or rent an apartment recently in the Twin Cities. But rising prices and the persistent scarcity of entry-level homes and rentals poses a growing threat to the economic expansion of the region.

"This is absolutely a threat to the local economy," said Libby Starling of the Federal Reserve Bank of Minneapolis. "Affordable housing has been one of the primary attributes of our regional economic competitiveness, and that is no longer going to be true."

A myriad of factors has contributed to the state's chronic housing shortage, from zoning laws that builders say restrict their options as well as changing demographics and consumer tastes. Fixing it won't be simple or swift.

The state is expected to be 40,000 houses and apartments short of what's needed over the next five years to keep pace with population growth, a new estimate from the Minnesota Housing Finance Agency finds.

"This can't go on forever," said John Patterson, the agency's research director. "It's unsustainable for prices to rise faster than incomes."

In the past year under the pandemic, low interest rates and a need for work-from-home space accelerated the decadeslong crunch, and fueled record high prices.

In August, houses sold on average in just 22 days, twice as fast as last year. And earlier this summer, the median sale price of a house broke $350,000 for first time, gutting options for first-time buyers as well as move-up buyers like Abby and Andrew Smith, who have a young daughter and plan to have more.

This summer, the Smiths listed their starter house in Brooklyn Center for $290,000. After getting 48 offers and $60,000 more than they were asking, they thought that they'd be able to trade up to a new-build on a much larger lot. With a budget of even a half-million dollars, there were few options. So they settled for a house in Maple Grove that was listed for $500,000. There were nearly a dozen other offers, so they paid $33,000 more than the sellers were asking.

"It was exhausting," said Abby Smith. "And we couldn't afford the things we wanted."

The chaos in today's housing market has its roots in the housing crash that followed the Great Recession. In the early 2000s, home building soared to record highs as the economy hummed and mortgage lenders loosened their underwriting standards, enabling even those with little or no credit to buy a home.

By the mid-2000s, as the mortgage crisis erupted and the economy crashed, home sales plummeted and building came to a grinding halt. The market was flooded with thousands of new houses that took years to unload.

Home building bottomed out in 2011 and has been on the rise ever since. But with labor in short supply and materials tough to get, builders have been unable to keep pace. With rising demand, the price of a house in the Twin Cities has more than doubled in less than a decade, rising far faster than wages.

The Federal Reserve Bank of Minneapolis now ranks housing affordability as one of the region's top five concerns.

"People with the lowest incomes have always struggled with housing costs and that hasn't changed," said Starling, the central banks' director of community development and engagement . "What's changing is that more middle-income people are beginning to struggle. Their lives are being turned upside down as they struggle to find housing they can afford."

Last week the Met Council reported that the region has slid even further behind in addressing the needs of the lowest-income households. A decade ago, the agency estimated that the Twin Cities needed an additional 44,570 affordable housing units between 2011 and 2020 to meet demand. Yet only 16,000 were built, hardly making a dent.

Len Kiefer, deputy chief economist for Freddie Mac, a federal agency that provides mortgage guarantees to lenders, fears the expanding affordability crisis could hamper businesses' efforts to attract workers. Narrowing that gap could take years.

"This is a very sticky issue," Kiefer said. "Building is picking up and over time it will help. But it's a grind, and it will take some time before we'll start to solve the problem."

Metro-area developers say zoning rules and fees have limited their ability to build the kind of houses buyers can afford in the places they want to live. They blame rules that impose restrictions on everything from the size of the home to the number of garage stalls.

Nearly three-quarters of residential land in the 13-country metro is zoned solely for single-family detached homes, according to a Star Tribune analysis. Almost two-thirds of that land also requires a minimum lot size of at least a quarter of an acre — with some minimums as large as 5 acres, zoning practices that experts say is directly associated with higher prices.

Steve Furlong, a Twin Cities mortgage broker and developer, sees no easy path to ease the pressure.

As a long-time resident of Bloomington, he's knows the suburb well and has done a handful of small redevelopment projects in the city. None of that prepared him for the challenges he faced two years ago, when a local land owner asked him to redevelop a 1.5-acre parcel on the east edge of town.

Furlong proposed 15 side-by-side townhouses aimed at downsizing baby boomers and young families in the city who had outgrown their older, single-family ramblers.

Elected officials in Bloomington had long sought higher-density development, and the city hadn't had any new townhouses in at least 15 years. Furlong wasn't asking for a city subsidy and planned to price a handful of units at about $400,000, enabling lower-income buyers to qualify for down payment assistance.

Neighbors didn't complain about the affordability component; the density of the project was the problem. After nearly two years of negotiations, the City Council approved the project. But months before construction was to begin, the county failed to sign off on a key approval, throwing the project in limbo.

"Restrictive zoning is just one of a hundred different obstacles in putting a project together," Furlong said. "Sometimes it means an outlay of just $100,000 to get to [a] City Council decision."

A recent survey by Zillow shows that housing experts nationwide believe, by a wide margin, that loosening zoning rules to allow denser housing would be the most effective way to increase the housing supply. Increasingly, elected officials at the state and local level agree.

Following a Star Tribune report on restrictive zoning and racial housing disparities, state Rep. Steve Elkins (DFL-Bloomington) sponsored a bill that would limit many requirements cities impose on residential development, making it easier for developers to build the kind of housing that's already in short supply.

Furlong agrees that regulatory changes are critical. But based on his recent experience in his own hometown of Bloomington, he doesn't think that's enough. The region won't get more housing, he argues, until there's stronger collaboration between residents and city leaders. Developers are already keenly aware of the risks of such projects, Furlong said, and unless they have a vested interest in the project, many won't take the risk.

"There's never a guarantee that you'll make a profit and there's a likelihood that you'll lose money — and I've done that," he said. "But I'm a stakeholder here and I want to see good things for Bloomington. I want there to be places for people to live."

Correction: A previous version of this story misstated the timeline of 16,000 affordable housing units built in the Twin Cities. That is the number built in the last decade.