How big is the US housing shortage?

NPR. This is the indicator for Planet Money. I'm Adrian Ma. And I'm Waylon Wong. One of the hot topics of the US 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 US. People like Olivia Garcia. She's from Los Angeles, and earlier this year, Olivia and her fiance opted to sell their stuff and travel overseas instead of paying LA rents.

We did our traveling because we were like, oh my God, it's so expensive. Just like living here, being in LA, might as well go spend our savings doing this because it'll be cheaper anyways. We're making girl math with 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, Adrian. But, you know, Olivia and her fiancee did eventually return to the US so that Olivia's fiancee could start a new job. And back in LA, 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? No, housing math this time. 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 US housing shortage.

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In the early 2000s, the problem with the US housing market was that there were too many homes. This supply glut eventually led to a bust in home prices, and that contributed to the great financial crisis. Now 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. You 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 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. Let'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. So 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. For instance, back in 2022, researchers now at the American Enterprise Institute and George Mason University, they estimated how many housing units they think would have been built in the US 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. So 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 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 fiance 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, although 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. What's the smallest of all the ones we looked at?

We were like, OK, well, this is going to be tight living, but 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.

Olivia's father, who also lives in the LA 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 fiance are adapting to their small space. We have like our own little patio area. There's like a barbecue and 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. David Wessel at Brookings says that home prices and rents, not the vacancy rate, should signal whether these kinds of housing policies are effective. And 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.

This episode was produced by Corey Bridges with engineering by Jimmy Keeley. It was fact-checked by Sierra Juarez, Kaking Cannon is our show's editor, and the indicator is a production of NPR.

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