Why It’s Tough to Calculate the Housing Shortage

Many of us agree that we have a housing shortage.

Its size though is debatable.

The Housing Shortage

Households

For starters, we should identify which households are looking for housing. Defined as all people that share one housing unit, households could be composed of a single individual or many, a family, or unrelated people.

Ascending in size since 1960, there are 131 million households in the U.S.:

Housing Units

Next, we can move to supply and demand.  While we can calculate a shortage by comparing the number of households to the available housing units, it’s not quite that simple. Although a shortage typically refers to more quantity demanded than supplied, with housing, we also have to recognize affordability. At this point a new Brookings paper suggests that some households combine because separately they cannot afford to live together. As a result, we could have a discrepancy between the number of desired households and the actual number.

In addition, not everyone counts the housing stock in the same way:

Housing Vacancies

And from there, we have to figure out the vacancy rate. Just like there will always be some unemployment, there will always be housing vacancies. They include for sale units, seasonal vacancies, and the units held off the market:

The Shortage

Then, at this point, we need a base year. And that takes us to 2006 when “supply was better aligned with demographic needs…”

Here I was hoping we could calculate the shortage, but it gets even more complicated because we have to agree on a natural vacancy rate. Still we could just use what is called the “:back-of-the-envelope” number. Then we just combine the number of households, the number of units, and the vacancy rate to decide the gap between what is needed and available.

And, if we weren’t satisfied, we could proceed with different estimates. The National Association of Realtors uses a historical approach. Other methods include inputting household formation and construction starts or identifying pent-up demand. And, I won’t even explain the “Oaxaca-Blinder decomposition.”

However, we can get a number. According to Brookings’s scholars, we had a shortage of approximately 4.9 million units during 2023:

Other estimates ranged from 1.5 million to 5.5 million units.

Our Bottom Line: Statistics

Seemingly objective, statistics become debatable when we take a closer look. And yet, we “treasure what we measure.”

My sources and more: Thanks to Brookings for all of today’s facts.