Housing's Undersupply Raises Concerns

May 12, 2015

About 1.5 million new housing units are needed each year to accommodate the rising population, writes Lawrence Yun, the chief economist of the National Association of REALTORS® at the Economists’ Outlook blog. Yet, housing starts have averaged about 766,000 per year for the past seven years.

“These multiple years of undersupply compared to what is needed is the reason why much of the country is experiencing a housing shortage with few inventory of homes for sale and falling apartment vacancy rates,” Yun notes. “Consequently, rents and home prices are rising by at least twice as fast as wage growth.”

Yun says that builders need to ramp up construction soon or the housing shortage will worsen. “Housing affordability will take a hit as a result,” he says.

The U.S. has about 4 million births each year and about 2 million deaths each year – which means an annual population gain of about 2 million. Also, immigration is making up another half million to one million each year, which brings the U.S. population up by about 3 million each year. 

Source: “Births and Housing Demand,” National Association of REALTORS® Economists’ Outlook blog (May 11, 2015)