Housing Supply Gap Surpasses 4 Million Homes in 2025 as Construction Fails to Keep Pace With Demand

PR Newswire

Cumulative deficit widens to 4.03 million homes; 1.82 million young households missing amid affordability constraints

AUSTIN, Texas, March 3, 2026 /PRNewswire/ -- The U.S. housing supply gap widened to an estimated 4.03 million homes in 2025, increasing from 3.8 million in 2024, according to the 2026 Housing Supply Gap Report from Realtor.com, as new construction once again fell short of household formation and pent-up demand from younger households persisted.

In 2025, approximately 1.41 million households were formed, compared with 1.36 million housing starts. While the annual shortfall of roughly 50,000 units appears modest, it adds to more than a decade of underbuilding that has constrained supply, fueled home price growth and pushed homeownership further out of reach, particularly for younger Americans.

"Even when annual construction and household formation are roughly balanced, the market is still digging out from more than a decade of underbuilding," said Danielle Hale, chief economist at Realtor.com. "A supply gap exceeding 4 million homes underscores how deeply rooted the shortage has become. Without a sustained and targeted increase in housing supply, particularly in areas with strong job growth and persistent demand, affordability challenges will continue to sideline many would-be buyers."

2025 marks the third-largest annual deficit since 2012, trailing only 2020 and 2023. Although the largest single-year gap occurred in 2020 during pandemic-related disruptions, recent deficits reflect more persistent structural imbalances between supply and demand and the difficulty of making sustained progress against the gap.

Pent-Up Demand From Young Households Intensifies Shortage

The 2026 Supply Gap Report finds that 1.82 million Millennial and Gen Z households were "missing" in 2025, the highest count in 4 years. Among 18- to 44-year-olds, headship rates have declined over the past decade as high housing costs and limited supply have delayed independent living. The share of young adults living with parents was, on average, 2.7 percentage points higher by age than during the 2010–2014 period.

Affordability remains a key barrier. In 2025, the minimum recommended income to purchase a median-priced starter home was approximately $86,000, about $8,000 lower than the prior year, largely due to improved mortgage rates. However, that threshold remains above the earnings of many younger households. The median down payment reached $30,400, representing 14.4% of the purchase price, and it would take a median-income household seven years to save for a typical down payment at today's savings rates.

All measured in thousands

Because headship includes both renters and homeowners, expanding affordable rental supply can also help ease constraints. Renting remains more affordable than purchasing a starter home in 49 of the 50 largest U.S. metro areas, reinforcing rental housing as a key pathway to independent household formation.

Regional Gaps Persist, With Northeast Most Constrained Relative to Construction

Housing supply conditions vary significantly by region. The South carries the largest cumulative deficit at 1.62 million homes, followed by the Northeast at 952,000, the Midwest at 865,000 and the West at 660,000.

However, when measured against cumulative construction since 2012, the Northeast faces the most acute shortage, followed by the Midwest, the South and the West. The Northeast was also the only region to see improvement in both its missing young households and overall supply gap in 2025, supported by housing starts reaching their highest level since 2015. Even so, the region remains the most supply-constrained on a relative basis.

Construction Faces Headwinds Despite Elevated Completions

Approximately 1.5 million homes were completed in 2025, a level that remains elevated by historical standards but below 2024's pace. Single-family completions were essentially flat year over year, while multifamily completions declined. Total housing starts were relatively stable overall, though single-family starts fell to roughly 940,000, the lowest level since 2019, while multifamily starts rose to 415,000.

Builders continued to face structural challenges, including zoning restrictions, permitting hurdles, labor shortages and elevated material costs. Although the share of new home sales considered affordable rose from 45% in 2024 to 47% in 2025, and new home prices were steady year over year in the fourth quarter, affordability constraints continue to limit buyer activity.

Even under an optimistic scenario in which construction increases 50% from the 2025 pace and pent-up demand fully dissipates, it would take roughly seven years to eliminate the current deficit.

Meaningfully closing the housing supply gap will require sustained increases in construction and a focus on building in areas where demand is strongest. Expanding access to affordable housing supply remains essential to restoring market balance and ensuring future generations have a realistic pathway to homeownership.

"While construction levels remain elevated compared with historical norms, they are not yet high enough, or targeted enough, to meaningfully close the gap," said Hannah Jones, senior economic research analyst at Realtor.com. "The fact that it would take roughly seven years to eliminate the deficit even under an optimistic building scenario highlights just how significant and persistent this shortage has become."

Combating the U.S. Housing Shortage and Let America Build

Realtor.com^®'s Let America Build campaign continues to spotlight the urgent need to expand housing supply through policy and regulatory reform. Launched at SXSW in 2025, Let America Build advances the national conversation on affordability and new construction barriers, and calls on lawmakers, builders, advocates and communities to remove red tape, modernize zoning and streamline permitting to accelerate construction where it's needed most.

Methodology
To arrive at yearly household formation, the increase in households between December in the previous year and the current year were calculated. This value was used as the number of household formations in the current year. Home starts, completions and permits refer to the total homes metric in the Census construction data, unless specifically referenced as single-family or multi-family, which includes both moderate- (2-4 unit) and high-density (5+ unit) multi-family. HMI and vacancy data were pulled and displayed as stated in the data source.

To calculate pent-up demand, the headship rate was calculated by single-year age using IPUMS CPS data. The 'target' headship by age was set as the 2010 to 2014 average, and the resulting gap was calculated comparing 'target' headship to actual households.

About Realtor.com^®
Realtor.com^® pioneered online real estate and has been at the forefront for over 25 years, connecting buyers, sellers, and renters with trusted insights, professional guidance and powerful tools to help them find their perfect home. Recognized as the No. 1 site trusted by real estate professionals, Realtor.com^® is a valued partner, delivering consumer connections and a robust suite of marketing tools to support business growth. Realtor.com^® is operated by News Corp [Nasdaq: NWS, NWSA] [ASX: NWS, NWSLV] subsidiary Move, Inc.

Media contact: Mallory Micetich, press@realtor.com

SOURCE Realtor.com