The housing shortage isn't just a coastal crisis anymore

San Francisco, Los Angeles, New York and Washington have long failed to build enough housing to keep up with everyone trying to live there. And for nearly as long, other parts of the country have mostly been able to shrug off the housing shortage as a condition particular to big coastal cities.

But in the years leading up to the pandemic, that condition advanced around the country: Springfield, Missouri, stopped having enough housing. And the same with Appleton, Wisconsin, and Naples, Florida.

What once seemed a blue-state coastal problem has increasingly become a national one, with consequences for the quality of life of American families, the health of the national economy and the politics of housing construction.

Today more families in the middle of the U.S. who could once count on becoming homeowners can't be so confident anymore. And communities that long relied on their relatively affordable housing to draw new residents can no longer be so sure of that advantage.

"It's like the cancer was limited to certain parts of our economic body," said Sam Khater, chief economist at Freddie Mac. "And now it's spreading."

Freddie Mac has estimated that the nation is short 3.8 million housing units to keep up with household formation. Up For Growth, a Washington-based policy and research group focused on the housing shortage, says that deficit doubled from 2012 to 2019. In that time, supply worsened in 47 states and the District of Columbia, according to an Up For Growth report published Thursday. Among 310 metropolitan areas nationwide, supply was dwindling or shortages were growing worse in three-quarters of them heading into the pandemic.

One consequence has been clear during the pandemic: Home prices and rents have soared nationwide, including in places where housing affordability had long been taken for granted.

But that crush of demand mostly landed in communities that were already short on housing. And a housing market with no slack can't absorb shocks like a pandemic-driven frenzy.

In booming Boise, Idaho, Up for Growth estimated that the region already had a shortage of more than 13,000 housing units in 2019, using government data on housing and household formation. That's equivalent to about 5% of the region's housing stock. Athens, Georgia, and Pensacola, Florida, had more than enough housing a decade ago, according to the analysis. By, 2019 those cushions had vanished.

In both real and percentage terms, the shortfalls are more dramatic in some big metros: Los Angeles entered the pandemic needing nearly 400,000 additional homes; Miami, almost 200,000; and Washington about 150,000. Even Phoenix, known as a far easier place to build than coastal metros, had developed a deficit by 2019 of about 100,000 units.

Such numbers are imperfect estimates, responses to a question that can't be definitively answered: How much housing would you need to build in a given community to maintain a healthy market, one in which renters don't line up to view available units and homes for sale don't spark bidding wars?

Any answer depends on some specific assumptions about the right vacancy rate to ensure there's always some housing available. Or about the number of "missing households" in need of new housing — young adults who'd like to move out of their parents' homes but can't afford to or roommates who'd rather live on their own if they could.

"It looks like the ability to live where you want to work," said Mike Kingsella, CEO of Up For Growth. "It looks like not having to worry about housing instability. It looks like a reasonable chance of eventually buying your own home."

These estimates of what it would take to create that world also don't reflect a larger concern economists often cite: The cost of housing in the highest-paying, most productive parts of the country deters people from moving there (or forces existing residents to move away). If Los Angeles had built an extra 400,000 homes over the past decade, it would be more affordable today. And that might lure more people there, driving demand for even more housing.

Other forces like widening income inequality also worsen housing affordability, said Chris Herbert, managing director of the Harvard Joint Center for Housing Studies. That's because more higher-income households compete for limited housing (prompting builders to build high-end homes).

"That's not to say that the supply story isn't important," Herbert said. "But it's intersecting with other factors that are driving housing prices up."

What's causing the shortage itself is complex. The homebuilding industry lost about 1.5 million workers in the Great Recession of 2007-09 and has been in a labor shortage since. Land has grown more expensive. Lending tightened for builders, just as it did for homebuyers after the bubble. The cost of lumber and other materials has risen.

Robert Dietz, who travels the country as the chief economist for the National Association of Home Builders, warned of that confluence of problems before the pandemic.

"Over the last four or five years, every place I go, they cite underbuilding," he said. The exception is communities that have been losing population," although they may need new or rehabbed housing, too, to replace homes that become uninhabitable. "Everywhere else," Dietz said, "it was just a matter of degree and scale."

There is more housing under construction nationwide today than at any time since the 1970s, when many baby boomers were forming households (today's big construction numbers reflect in part that it takes longer to build a house amid pandemic supply-chain delays). But rising interest rates and fears of a looming recession mean that homebuilders are already starting to pull back, Dietz said. And even at the current rate of construction, it would take years to dig out of the country's deficit.

What would it mean, then, to reconceive of the housing shortage as a national crisis — with perhaps national answers, and shifting politics? Housing researchers at the libertarian-leaning Mercatus Center have often pressed the issue with conservative politicians.

"Before COVID-19, you would talk to people in Utah, in Tennessee, and they'd be like, 'Oh yeah, this is a blue-state problem; Democrats don't know how to run their state; we don't have that problem here,'" said Nolan Gray, a former Mercatus affiliate and now the research director at California YIMBY, a group that advocates more housing. "And then of course starting in 2020, I'm getting frantic calls from people in states like Utah or Montana, or Florida increasingly."

Members of Congress of both parties have increasingly called for such an idea, in which the federal government would give priority for grants to local communities that ease zoning restrictions or build denser housing.

The Biden administration also released a long list of ideas this spring for boosting housing supply. It controls few levers to do that, especially without Congress funding more affordable housing programs. But White House officials say encouraging local zoning changes would be one of their best tools. That's already happening to a modest degree with the bipartisan infrastructure bill.

At minimum, the housing shortage has become much harder to ignore in more places.

"In prior years, households had many more opportunities to move to locations where housing is abundant and affordable for a wide variety of income levels," said Emily Hamilton, another Mercatus Center researcher. "But that's becoming less and less of an option."

Rising housing costs are a major driver of inflation that continued to worsen in June. But the problem also matters because people who can't obtain the housing they need face a narrowing set of life options.