Why the US housing shortage keeps growing despite new construction

America’s housing market remains stuck in a supply shortfall. Despite a surge in residential construction following the pandemic, the US fell short of demand by 4.7 million homes in 2023, according to Zillow. That gap widened by another 159,000 units from the year before, revealing that even near-record building activity cannot meet population growth.

Homebuilders added 1.4 million new homes in 2023, the highest total since 2007. But that was not enough to serve the 1.8 million new households formed that year. With demand outpacing supply, affordability has continued to erode. Though the pace of price increases has slowed, the average sales price for new and existing homes remains near $423,000.

Construction has helped slow the rate at which the housing deficit grows. Still, Zillow economist Orphe Divounguy said that the US simply does not have enough homes to meet demand. Despite increased construction activity, the gap remains entrenched.

Tariffs and supply costs continue to strain builder budgets

Tariffs introduced under the Trump administration have increased material costs, particularly for inputs like lumber and copper. These are essential to framing and electrical systems and now come at a premium. Builders, faced with rising bills, often shift those costs to buyers.

Efforts by industry groups to secure exemptions for construction materials were largely unsuccessful. As a result, builders must factor in higher upfront costs, which push home prices further beyond the reach of many families.

Material pricing volatility, combined with tight inventories and domestic supply chain delays, complicates budget forecasting. For many developers, cost uncertainty alone discourages new project starts.

High mortgage rates and economic unease reduce buyer demand

The average 30-year mortgage rate remains near 7 percent, more than double what buyers paid just a few years ago. Monthly mortgage payments have risen sharply, pushing many households out of the market.

In response, more homes are staying listed for longer, and builders are struggling to sell new units quickly enough to justify future builds. Housing starts fell nearly 10 percent in May 2025 from the prior year. Multifamily projects fell 30 percent month over month, and while single-family starts showed a slight gain, it was not enough to signal a recovery. Even with more available listings, a mismatch remains. Inventory may be growing, but affordability remains out of reach for many.

Regulatory constraints and labor shortages slow construction

Local zoning rules continue to limit how and where new housing can be built. In many areas, dense or affordable housing types are restricted by outdated codes or opposition from local boards. Federal policies can encourage reform, but most of the pressure to change zoning must come at the local level.

Labor shortages add another layer of difficulty. Skilled tradespeople remain in short supply across framing, electrical, and plumbing roles. The resulting delays drive up labor costs and slow project timelines.

With both regulatory and labor headwinds, builders face tight margins and high risk. That is keeping some developers from starting new projects, despite clear demand.

Builder sentiment declines as affordability pressures rise

The National Association of Home Builders/Wells Fargo Housing Market Index fell to 32 in June 2025, its third-lowest mark since 2012. Builder optimism has dimmed due to pricing pressure and limited buyer activity.

Roughly 37 percent of builders have cut prices, and 62 percent are offering incentives such as fee reductions or mortgage rate buydowns. These tactics help shift inventory but reduce profitability.

The NAHB now forecasts a decline in single-family housing starts for 2025. Even with a recent construction boom, supply gaps and affordability challenges continue to shape the market’s outlook.

Sources:
NBC News