Zoning alone won’t close U.S. housing shortage, experts say

United States, August 26, 2025

News Summary

The United States faces an estimated shortfall of about 4.7 million housing units, driven by restrictive zoning and compounded by financing, labor and materials constraints. While upzoning can lower regulatory costs and enable denser development, experts warn it won’t automatically trigger large-scale building without cheaper construction credit, more skilled workers, lower input prices, and productivity gains. Policy proposals include public financing, federal loan supports, tax incentives, workforce training, tariff adjustments, and income supports for low-income renters. A coordinated mix of supply- and demand-side measures is needed to meaningfully close the gap.

U.S. Housing Shortage Deepens as Zoning, Financing, Labor, and Materials Constrain Building

Short version: The United States faces a massive shortage of homes that is growing over time. The gap includes an estimated 4.7 million fewer housing units than families. Multiple forces are at work: long‑standing land‑use rules that limit density, tighter construction finance since the late 2000s, chronic labor shortfalls, and higher materials costs. Recent data show a modest rebound in housing starts in mid‑2025 driven by multi‑family projects, but permits and builder sentiment remain weak, suggesting the recovery may stall.

Key numbers up front

National estimates put the housing shortfall in the millions, with 4.7 million fewer units than families. In July 2025, housing starts reached a seasonally adjusted annual rate of 1,428,000 units, up 5.2 percent from June and 12.9 percent year over year, led by a near 10 percent rise in multi‑family starts. Building permits that month declined 2.8 percent, raising questions about sustainability. Builder sentiment remains low with a headline index reading of 32 in August 2025, the 16th month below the neutral 50 mark. Two supply metrics from builders show more incentives and price cuts: incentives were used by about 66 percent of builders and 37 percent reported cutting prices in August 2025.

Why the shortage exists now

The shortage did not spring from a single cause. Four major constraints recur in research and industry analysis:

• Land‑use regulation: Zoning often blocks apartment construction on roughly three quarters of residential land and imposes rules that effectively require large single‑family lots. Parking mandates frequently make multi‑family projects financially or physically impractical in places where jobs are concentrated.
• Financing: Lending for construction became scarcer and more expensive after the late‑2000s financial crisis. The dollar value of residential construction loans dropped substantially in the years after the crash and stayed constrained through the 2010s and early 2020s. Low policy rates did help for a time, but sharper rate increases beginning in 2022 slowed building again.
• Labor shortages: The construction sector shed nearly 1 million jobs during the Great Recession and many workers never returned. Recruiting younger workers and attracting foreign‑born tradespeople have both been harder in the recovery, driving up labor costs and delaying or canceling projects.
• Materials and supply: Production capacity for key inputs like lumber shrank after the recession, and tariff policies and trade shifts have added to costs for lumber, metals, and other inputs.

How much is regulation to blame?

Advocates who press for more housing point to regulation as a core cause. Relaxing density rules and eliminating exclusionary zoning would legally allow more housing in high‑demand places. One 2022 estimate finds that over 40 percent of the cost of a typical multi‑family project can be traced to regulatory requirements. Over the past decade some jurisdictions have reformed zoning, producing local wins in several states.

But regulation is not the whole story. Homebuilding collapsed after the subprime crisis and Great Recession, yet zoning maps did not suddenly change in that year. Evidence shows some tightening of density rules across the 2006–2018 period and rising compliance costs for developers between 2011 and 2016, but those shifts do not fully explain why production never returned to pre‑crisis peaks. Financing, labor, and materials also changed in ways that make new building harder and more expensive.

Why developers still need big returns

Developers take concentrated, highly leveraged bets on single projects. That risk structure makes them more likely to demand high expected returns compared with passive investments like diversified stock funds. Even when zoning is reformed, construction proceeds only if the economics work. Lower regulatory cost can reduce the minimum rent or price needed for a project to break even, but persistent financing and labor constraints can keep projects uneconomical.

Policy levers beyond zoning

Experts argue that a realistic national housing agenda must pair land‑use reform with measures that tackle capital, labor, and materials:

• Public finance: Local governments can provide low‑cost financing for multi‑family projects and recycle revenue back into new housing. Some municipalities have already piloted such approaches. At the federal level, creating long‑term, fixed‑rate loan programs for developers when starts fall below targets could stabilize production.
• Tax incentives: Accelerated depreciation and other tax rules can channel private capital into rental development if structured to align investor incentives with affordable supply goals.
• Labor and training: Expanding immigration pathways for skilled trades and boosting vocational training can rebuild the construction workforce over time.
• Materials policy and productivity: Reducing tariffs on key inputs, rebuilding domestic capacity, and encouraging modular and factory‑built approaches can lower costs and raise productivity, which has been stagnant for decades.
• Direct affordability programs: Increasing housing supply alone will not ensure affordability for the lowest‑income households. Cash transfers, rental subsidies, and targeted social housing remain necessary complements.

Market and economic outlook

Recent starts data suggest pockets of strength, especially in the multi‑family market and in certain regions. But falling permits and depressed builder sentiment point to fragile momentum. Higher mortgage rates and tight construction finance can depress new‑home sales, and sustained weakness in building could weigh on jobs and local economies. If policy can reduce the combined cost of regulation, financing, labor, and materials, production can rise and relieve pressure on prices over the long term. Left unaddressed, the shortage will continue to constrain economic opportunity and deepen affordability stresses in places with strong job markets.

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Frequently Asked Questions

Key features at a glance

Feature	Why it matters	Data or examples
National shortage	Large gap drives prices and displacement	Estimated 4.7 million fewer units than families
Zoning limits	Restricts where denser housing can be built	Apartment construction prohibited on roughly 75% of residential land in many places
Construction finance	Determines whether builders can start projects	Construction loans fell sharply after the late 2000s; lending remains constrained
Labor and materials	Raise costs and delay projects	Nearly 1M construction jobs lost 2007–2011; input costs and tariffs increased
Policy solutions	Must be combined to be effective	Upzoning, public finance, tax incentives, training, immigration, tariff changes, modular building

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Additional Resources

• Vox
• Wikipedia: Housing in the United States
• Chicago Tribune (via TheDailyNewsOnline) editorial
• Google Search: United States housing crisis Congress editorial
• Reuters: New U.S. home sales fall
• Google Scholar: US home sales borrowing costs housing demand
• NBC News: Why the housing market is so expensive
• Encyclopedia Britannica: United States housing market
• The New York Times: Real-estate games
• Google News: US housing market