How big is the US housing shortage?

0:01NPR.

0:11This is The Indicator from Planet Money. I'm Adrienne Ma. And I'm Waylon Wong. One of the hot topics of the U.S. presidential campaign was housing affordability. Both candidates talked about what they would do to boost the supply of homes and bring prices down. The search for affordable housing is a major concern for a lot of people in the U.S. People like Olivia Garcia. She's from Los Angeles. And earlier this year, Olivia and her fiancé opted to sell their stuff and travel overseas instead of paying L.A. rents. We did our traveling because we were like, oh, my God, it's so expensive. Just like living here, being in L.A., you know, might as well go spend our savings doing this because it'll be cheaper anyways.

0:53We're making girl math would state that I am making money traveling. Do you have to take a course in girl math to do it? Some of us were born doing girl math, Adrienne. But, you know, Olivia and her fiancé did eventually return to the U.S. so that Olivia's fiancé could start a new job. And back in L.A., the apartment search was grim. It's just all around really nightmarish. Like, the options are pretty slim. Olivia was feeling what politicians have identified as a housing shortage. But how many homes would it take to fix the problem? This gets us into another kind of mathematical conundrum. A girl math conundrum?

1:32No, housing math this time. And it turns out trying to calculate the size of the problem is a bit of an economic brain teaser. So today on the show, we explain the tricky business of quantifying the U.S. housing shortage.

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2:44Now the consensus among politicians, as well as people in the housing and construction industries, is that we have the opposite problem, not enough homes. But calculating the shortfall has yielded really different figures. David Wessel studies fiscal and monetary policy at the Brookings Think Tank. I kept hearing people on the campaign trail throwing out all these numbers about how many houses we were short. 1.5 million, 3.8 million, 5.5 million. David looked into where these numbers come from, and he says a common approach to coming up with the housing shortage number is to use something called the vacancy rate.

3:18You take all the housing units in the United States, apartments, single family houses, townhouses, and you say from government surveys what percentage of them are vacant. Now, that might sound pretty straightforward, but David says it's not clear-cut what counts as a vacant home. Like, think about a vacation home. Some of the estimates count, you know, the cottage on the lake that you only use six months a year. If they do their survey in February and it's empty, they count it as vacant. But other estimates leave that lake cottage out of the equation. Another example of an ambiguous case is a house that's vacant but unavailable.

4:01Let's say your mother died and you're still cleaning out the house, so there's nobody living there, but it's not available for sale or rent. So just this first step in quantifying the housing shortage, calculating the current vacancy rate, can be tricky. The next step is comparing the current vacancy rate to a historical vacancy rate that's considered normal. If the current rate is lower than the so-called normal rate, that is considered an indicator of a housing shortage. But as David explains, determining the normal rate opens up another can of analytical worms. What is a normal or healthy vacancy rate isn't fixed in time.

4:41So think about this. We have a lot better listing services on real estate and you can do a lot of shopping online. So maybe houses stay vacant less often because it's easier, thanks to the technology, for a buyer and seller to find themselves. So you might over time see a falling vacancy rate, and these estimates kind of ignore that possibility. Big players in the housing industry use the vacancy approach as the basis for calculating the size of the housing shortage. But David says variations in how they crunch the vacancy numbers sometimes results in different figures. And then there are economists that take a completely different approach to quantifying the housing shortage.

5:21For instance, back in 2022, researchers now with the American Enterprise Institute and George Mason University, they estimated how many housing units they think would have been built in the U.S. if zoning regulations and other restrictions did not exist. Basically, they say that if we hadn't had so many restrictive zoning rules, we would have had 20 million more houses in 2021 than we actually had. That's a huge number. Right. It's 14 % of the national housing stock. So we get all these different estimates for the housing shortage, which could make you think like, OK, well, what's it all for? And David himself actually questions the usefulness of a national number for the housing shortage because, well, he points out that housing largely is a local issue.

6:11So a national figure glosses over the differences in housing markets from state to state, city to city, sometimes even down to the neighborhood level. If anything in the world is not national, it's housing. The policies we need are probably very much at the state and local zoning level. And so in some respects, the national thing is almost meaningless. In California, where Olivia Garcia lives, Governor Gavin Newsom has described housing affordability as the state's original sin. Olivia and her fiancé did find a place to live in Los Angeles through a website for furnished rentals. It's only 400 square feet because it's a converted garage attached to a single family home.

6:57Although it does have its own entrance. The cost? $2 ,000 a month, which is actually less than the rent they paid on their previous place. It's the smallest of all the ones we looked at. We were like, OK, well, this is this is going to be like tight living. But, you know, we're making it work for sure. This converted garage is a kind of housing called an accessory dwelling unit. They're also called coach houses or granny flats or casitas. And they've emerged as one way to address the gap in affordable housing. California passed legislation back in 2016 that required cities and counties to allow these units on most residential lots.

7:35Olivia's father, who also lives in the L.A. area, actually rents out his own accessory dwelling unit to a family of five. Olivia says her father's tenants are in tight quarters, but making the best of it, just like she and her fiancé are adapting to their small space. We have like our own little patio area. There's like a barbecue and a ton of seating. Like it really just expands the space. Like you don't feel like you're cooped up in a small 400 square foot little unit. So I think that's been the best part. We may see more of these accessory dwelling units popping up as state and local governments change laws to allow them.

8:11David Wessel at Brookings says that home prices and rents, not the vacancy rate, should signal whether these kinds of housing policies are effective.

8:23And speaking of housing policies, tomorrow's episode, we'll talk about what the president-elect Donald Trump says he wants to do about making homes more affordable.

8:38This episode was produced by Corey Bridges with engineering by Jimmy Keely. It was fact-checked by Sierra Juarez. Kate Kincannon is our show's editor, and The Indicator is a production of NPR.