The Housing Shortage Myth

In this solo episode, Sara challenges the idea that America’s housing crisis is simply a shortage problem. Drawing on Harvard’s State of the Nation’s Housing report and COGNITION Smart Data affordability research, she explores why the market is both starved and saturated, and why the real crisis lies in a mismatch of price, buyer, product, and place. From shrinking affordability and stalled mobility to growing demand for smaller, more efficient homes, this episode argues that solving the housing crisis requires more than building more. It requires measuring more accurately and valuing homes for what they offer, not just their square footage.

Transcript

Copy

SPEAKER_01 0:05

Hi, welcome to the Valuation Metric, a podcast about the risks, rewards, roadblocks, and revelations reshaping the way that we measure work. I'm your host, Sarah Gutterman, CEO of Green Builder Media, North America's leading media company focused on green building and sustainable living. Today we have a solo episode. No guests, no panel, just a question that the entire housing industry keeps answering incorrectly, in my opinion. We've been told for decades that America's housing crisis is simple arithmetic. Too few homes, so build more. But the newest data from Harvard's Joint Center for Housing Studies and from our own cognition smart data, affordability research, tells a stranger, perhaps a stronger, and really a more important story. A market that is somehow starved and saturated at the same time. What I like to call scarcity and slack. So stay with me because how we diagnose this determines what we build next and whether or not it actually cures our affordability crisis. So the context is for decades, the American housing debate has run on a single word. More. Build more and prices fall. Build more and the crisis eases. It's a satisfying story because it names the shortage, and shortages have obvious remedies. But the numbers coming in for 2026 complicate that story in a way that we can no longer just wave off because the market is now doing something that a simple shortage does not do. So, Harvard's Joint Center for Housing Studies 2026 State of the Nations Housing Report describes a market showing scarcity and slack at the same time. Existing home sales are stuck at nearly $4 million a year, a 30-year low down 6.1 million as recently as 2021. Household formation has slowed for three consecutive years. Rental vacancies have climbed from 5.9% to 7.3%, and four sale vacancies are rising alongside of them. Home ownership has slipped for the second year running. If this were just a straightforward case of too few homes, none of that would be happening all at once. A market genuinely starved of housing does not freeze and soften in the same breath. What we have instead is a mismatch. The insight is not original to America. Writing recently about Australia, climate adaptation architect Digby Hall argued that his country never had a shortage of structure so much as a system of incentives that distributes them poorly, one that finds it easier to sprawl outward than to house people well, resulting in empty bedrooms and unmet need. The particulars differ here in the US, but the diagnosis is really the same and still applies. Our crisis, too, is less about the raw count of dwellings than about which homes we build, where we put them, and what they cost to run, and who can actually afford them. Now, consumers are feeling this acutely. In a recent Cognition Smart Data survey focused on affordability, when respondents were asked to name the biggest obstacles keeping them from buying, it wasn't a shortage of homes. They pointed overwhelmingly at cost, probably not surprisingly. So high home prices, difficulty saving for a down payment, interest rates, insufficient income, and the rising burden of insurance and property taxes. Only about one in six named a lack of homes available to buy. Homeownership isn't being thwarted by a shortage of buildings. Rather, it's being impeded by an impenetrable wall of cost. Consider how many directions that mismatch runs at once. First, it's a mismatch of price. The median new home now costs over $400,000, a 54% jump since 2020, and nearly five times median household income compared to a historical norm that was closer to about 3x as opposed to 5x. With interest rates above 6%, the monthly payment on a median priced home has risen from roughly $1,700 in early 2020 to about $3,100 at the end of last year. And the income required to carry it has also nearly doubled, from around $66,000 to more than $120,000. We didn't just merely raise prices. We relocated the threshold of homeownership beyond the reach of the middle class that housing policy is supposed to serve. So this is also a mismatch of buyers. The homes that we build and hold are still pitched at a move-up buyer who is increasingly staying put or priced out of the market entirely. First-time buyers now make up just 21% of the market with a median age of 40 years old, which is higher than ever. The starter home has quietly stopped functioning as a rung on the ladder towards creating generational wealth. Meanwhile, boomers who bought decades ago when homes cost a fraction of what today's homes actually cost report roughly that about a third of them report that they would be very unlikely to afford their own homes in the current market given today's prices. Which means that those homes are being locked up and the very entry-level stock that younger generations need to get into the housing market is no longer available. This freeze shows up even among people who already own. So, in that cognition affordability survey, more than a quarter of current owners of all ages said that they'd be unlikely to buy their own home again at today's prices and rates. And nearly half said prices are just simply too high to justify moving or upgrading at all. The result is a market where the people who can't afford to move up and the people who won't move at all are just jammed up against one another. And so nobody's moving. It's also a mismatch of product. We keep optimizing for size at the precise moment buyers are optimizing away from size. Cognition data shows that the share of consumers who say that they want a smaller home rose from 28% to 38% in just one year over the past year, while the appetite for larger homes has stayed persistently low and is actually getting smaller. So people are really ready to make the trade. In that affordability survey, 87% of respondents said that they would accept a smaller home in order to own sooner. And four in 10 respondents said that they would go 25% below the typical new home footprint in order to afford a home and operate that home in a way that fits with their budgets. When asked what matters most in a home designed to lower operating costs, respondents put energy efficiency, efficient optimized layouts, and smaller sizes at the top of the list, ahead of everything else. So they weren't looking for upgraded fixtures and finishes and countertops. They were looking for efficiency and cost savings through efficiency. So buyers have clearly already made this turn towards right-sized, lower operating cost homes. And yet the industry is still delivering or trying to deliver square footage. And it's really not a small gap to close because a new efficient home saves an owner an estimated $25,000 over its first decade compared with a similar 20-year-old house. And that's real money that actually never shows up in an MLS listing, although it certainly should. Okay, and here's the rub. At the bottom of the market, the mismatch stops being an inconvenience and starts actually becoming a deprivation. So according to the Harvard Report, over the last decade, the number of units renting for under $1,000 fell by 7 million units. Affordable ownership inventory for households earning $75,000 or less dropped 60% since 2019. 11 million extremely low-income renters now compete for 3.8 million homes that they can actually afford. That's a shortfall of 7.2 million units. Now, among renters earning under $30,000, 83% are cost burdened, and two-thirds spend more than half of everything that they earn on housing. After the rent is paid, the typical household in that group is left with a median of $210 a month for food, medicine, transportation, and every other cost of being alive. And that's down from about $410 in 2019. That is what a mismatch looks like when it reaches the people with no margin to absorb it. So why does the market keep making the same error and deliver square footage as opposed to value? It's because the incentives reward it. Building large, higher margin move-up product on inexpensive land at the edge is the path of least resistance. It serves developers, landholders, and the investors who treat shelter as a yield product. The harder, more useful work, infill projects, office to residential conversion, bright-sized homes, missing middle density in places that people actually want to live that collides with zoning, financing, and appraisal systems that are calibrated for our current status quo, for the pattern that we already have in place. So it's kind of ironic that we spend our vacations in places like Charleston and Georgetown and Boston's North End admiring exactly the kind of walkable density that we've made illegal to build back at home. Now, to be clear, none of this is an argument against building. We definitely need more homes, urgently. But more of what? Priced how? For whom? And at what cost to operate? Those are the questions that determine whether new supply actually relieves our housing crisis or merely just repeats it and grows it at scale. The levers that answer those questions, appraisal standards, underwriting guidelines, the fields in an MLS listing, local zoning and incentives are within reach, and most of them move at the local and regional level, which is to say faster than Washington ever will. Encouragingly, there are some of those mover, those levers that are already moving. So Harvard notes a wave of state action unwinding the rules that entrench the mismatch. For example, legalizing accessory dwelling units or ADUs, permitting manufactured homes, allowing multifamily in-commercial zones, letting single-stair mid-rise buildings pencil out again. And each of those solutions is quietly a distribution fix, a way to put more of the right homes where people need them rather than more of the wrong ones where land happens to be cheap. And this is where value per square foot comes in, not as a slogan, but as a market correction. The mismatch at its root is a measurement problem. It's a valuation problem. We price homes by size and upfront cost. So size and upfront cost are what the market delivers. The instinct to measure differently is already there in the public. Asked in that affordability survey whether a home with a slightly higher purchase price, but a lower total monthly cost, principal, interest, insurance, utilities, and maintenance combined would count as more affordable. People already reason about what a home costs to live in, not just what it costs to buy. That's part of their purchase decision making process. Our metrics just simply miss the boat in terms of identifying the difference between first cost and full cost. But if we change what we count, what a home costs to operate, how it holds up, how healthy it is, where it's located, and how long it lasts. And the incentives finally start pointing towards the homes people actually want, then we can get people into homes that they actually can afford to keep. Now the work is to figure out how to value our built environment better, to measure homes and communities by what they give back rather than how much ground that they cover. So that's the reframe. Not a shortage to build out, but a mismatch to re-measure price, buyer, product, place. Four mismatches, one root cause. We count the wrong things, so we build the wrong things. And the fix starts with a better metric, measuring homes by what they give back and what they include. So if today's episode resonated, send it to one person who still believes that the crisis is just a numbers game, and then go one level deeper into the data behind it. Every statistic you heard today came from Harvard State of the Nation's housing report and from Cognition Smart Data's affordability research.com and continue, please, to watch the valuation metric. I'm Sarah Getterman, your host, and encouraging you to value properly because when we do that, we can build a better world.

SPEAKER_00 15:58

Before you click away, make sure you subscribe to the podcast wherever you listen. And don't miss the daily coverage on sustainability, housing, and what's next for home building at greenbuildermedia.com. Stay informed, stay ahead.