How big is the US housing shortage?

Summary

Episode Summary: "How Big is the US Housing Shortage?"

Podcast: The Indicator from Planet Money
Host: Adrienne Ma and Weylon Wong
Release Date: November 25, 2024
Topic: Assessing the magnitude of the housing shortage in the United States

---

Introduction

In this episode of The Indicator from Planet Money, hosts Adrienne Ma and Weylon Wong delve into the pressing issue of housing affordability in the United States—a central theme in the recent US Presidential campaign. As candidates propose strategies to increase housing supply and reduce prices, the podcast examines the complexities involved in quantifying the housing shortage, the real-life impacts on individuals like Olivia Garcia, and the potential solutions emerging at the grassroots level.

---

Personal Stories: The Human Impact of Housing Affordability

The episode opens with the personal narrative of Olivia Garcia from Los Angeles, highlighting the severe affordability crisis. Facing exorbitant rent prices, Olivia and her fiancé chose to sell their belongings and travel overseas to manage expenses.

Olivia Garcia [00:26]: "We did our traveling because we were like, oh my God, it's so expensive. Just like living here, being in LA, you know, might as well go spend our savings doing this because it'll be cheaper anyways. We're making girl math would state that I am making money traveling."

Despite their temporary escape, Olivia and her fiancé eventually returned to the US for her fiancé to start a new job, only to encounter a disheartening apartment search in Los Angeles.

Olivia Garcia [01:14]: "It's just all around really nightmarish. Like, the options are pretty slim."

Their experience underscores the widespread struggle to find affordable housing in major urban centers, setting the stage for a deeper exploration of the housing shortage.

---

Measuring the Housing Shortage: Complex Metrics and Methodologies

The hosts introduce the central question: How big is the US housing shortage? To unravel this, economist David Wessel from the Brookings Institution provides expert insights.

David Wessel [02:53]: "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."

Wessel explains that various estimates stem from different methodologies, primarily focusing on vacancy rates to assess the shortage.

Vacancy Rate Approach:

• Definition: The percentage of housing units that are unoccupied at a given time.
• Challenges: Differentiating between genuinely vacant homes and those occupied intermittently or under restrictive circumstances.

David Wessel [04:15]: "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."

Other complexities include distinguishing between vacant but unavailable homes, such as those tied up in legal matters or inherited properties.

David Wessel [04:48]: "Some of the estimates count... [vacant homes] or unavailable for sale or rent."

Historical Comparison:

• Process: Comparing current vacancy rates to historical "normal" rates to infer shortages.
• Issues: The "normal" rate is not fixed and can shift due to technological advancements in real estate listings and market dynamics.

David Wessel [05:33]: "What is a normal or healthy vacancy rate isn't fixed in time... houses stay vacant less often because it's easier thanks to the technology for a buyer and seller to find themselves."

These methodological differences lead to varying estimates of the housing shortage, ranging from 1.5 million to over 20 million missing units, as highlighted by different studies.

Alternative Approaches:

• Zoning and Regulatory Impact: Researchers estimate that restrictive zoning has significantly limited housing development.

David Wessel [06:33]: "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."

This approach suggests that regulatory barriers contribute substantially to the housing deficit, accounting for approximately 14% of the national housing stock.

---

Expert Insights: The Localized Nature of Housing Solutions

David Wessel questions the efficacy of national metrics, emphasizing that housing is inherently a local issue influenced by state and municipal policies.

David Wessel [07:17]: "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."

This perspective suggests that national figures may obscure significant regional variations, necessitating tailored local solutions rather than broad federal policies.

---

Innovative Solutions: Accessory Dwelling Units (ADUs)

In response to housing shortages, particularly in high-demand areas like California, accessory dwelling units (ADUs) have gained traction as a viable solution. The podcast explores this through Olivia Garcia's experience and her father's rental practices.

Olivia's Living Situation: Olivia secured a 400-square-foot ADU—a converted garage with its own entrance—for $2,000 a month, which, although small, was more affordable than their previous residence.

Olivia Garcia [08:02]: "It's the smallest of all the ones we looked at. We were like, okay, well, this is going to be like tight living. But, you know, we're making it work for sure."

ADUs in California: California's 2016 legislation mandates that most residential lots can accommodate ADUs, encouraging their proliferation as a means to ease housing shortages.

Weylon Wong [08:12]: "This converted garage is a kind of housing called an accessory dwelling unit..."

Olivia's father also utilizes an ADU to house a family of five, demonstrating the practicality of ADUs in increasing housing availability despite space constraints.

Olivia Garcia [08:47]: "We have like our own little patio area. There's like a barbecue and ton of seating... I think that's been the best part."

Economist David Wessel emphasizes that while ADUs are promising, the true measure of their effectiveness should be reflected in home prices and rental rates rather than vacancy rates alone.

David Wessel [09:20]: "Home prices and rents, not the vacancy rate, should signal whether these kinds of housing policies are effective."

---

Policy Implications and Future Directions

The episode concludes by highlighting the upcoming discussion on the housing policies proposed by the President Elect, Donald Trump, aimed at enhancing housing affordability. This sets the stage for continued exploration of governmental roles and the effectiveness of various housing initiatives.

Adrienne Ma [09:20]: "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."

---

Conclusion

This episode of The Indicator from Planet Money provides a comprehensive examination of the US housing shortage, navigating through personal narratives, complex economic metrics, and innovative solutions like ADUs. By incorporating expert analysis and real-life examples, Adrienne Ma and Weylon Wong illuminate the multifaceted nature of housing affordability, emphasizing the need for localized policy responses and thoughtful consideration of diverse measurement approaches.

---

Notable Quotes:

• Olivia Garcia [00:26]: "We're making girl math would state that I am making money traveling."
• David Wessel [04:15]: "What counts as a vacant home?"
• David Wessel [07:17]: "If anything in the world is not national, it's housing."
• Olivia Garcia [08:02]: "But, you know, we're making it work for sure."
• David Wessel [09:20]: "Home prices and rents, not the vacancy rate, should signal whether these kinds of housing policies are effective."

---

Production Credits:

• Produced by: Corey Bridges
• Engineering: Jimmy Keighley
• Fact-Checked by: Sierra Juarez
• Editor: Kate Kincannon
• Production: The Indicator is a production of NPR.

Transcript

[Adrienne Ma]

This is the indicator for Planet Money. I'm Adrienne Ma.

[Weylon Wong]

And I'm Weylon 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.

[Adrienne Ma]

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 fiance opted to sell their stuff and travel overseas instead of paying LA rents.

[Olivia Garcia]

We did our traveling because we were like, oh my God, it's so expensive. Just like living here, being in la, you know, might as well go spend our savings doing this because it'll be cheaper anyways. We're making girl math would state that I am making money traveling.

[Adrienne Ma]

Do you have to take a course in girl math to do it?

[Weylon Wong]

Some of us were born doing girl math, Adrienne. But, you know, Olivia and her fiance did eventually return to the US So that Olivia's fiance could start a new job. And back in la, the apartment search was grim.

[Olivia Garcia]

It's just all around really nightmarish. Like, the options are pretty slim.

[Weylon Wong]

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. 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 US Housing shortage.

[David Wessel]

This message comes from Apple Card. Apple Card is the perfect card for your holiday shopping. When you use Apple Card on your iPhone, you'll earn up to 3% daily cash back on every purchase, including products at Apple like a new iPhone 16 or Apple Watch Ultra. Apply now in the wallet app on your iPhone. Subject to credit approval. Apple card issued by Goldman Sachs Bank USA Salt Lake City Branch terms and more at applecard.com Support for the following message comes from LinkedIn ads. As a B2B marketer, you know how noisy the digital ad space can be. If your message isn't targeted to the right audience, it just disappears into the noise. By using LinkedIn ads, you can reach professionals who are more likely to find your ad relevant. Target them by job title, industry company and more. Get a $100 credit on your next campaign at LinkedIn.com results. Terms and conditions apply.

[Corey Bridges]

This message comes from Schwab. It's easy to invest in ideas you believe in with Schwab. Investing themes like online music and videos, artificial intelligence and electric vehicles. Choose from over 40 customizable themes. [e-mail] this message comes from NPR sponsor Land's End Outfitters. Your brand is important and they create apparel your team will want to wear. Go to business.landsin.com pod20 and use code pod20 for 20% off your first product.

[Adrienne Ma]

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.

[Weylon Wong]

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 yield really different figures. David Wessel studies fiscal and monetary policy at the Brookings Think tank.

[David Wessel]

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.

[Adrienne Ma]

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.

[David Wessel]

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?

[Adrienne Ma]

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.

[David Wessel]

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.

[Adrienne Ma]

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.

[David Wessel]

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.

[Weylon Wong]

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 is lower than the so called normal rate, that is considered an indicator of a housing shortage.

[Adrienne Ma]

But as David explains, determining the normal rate opens up another can of analytical worms.

[David Wessel]

What is a normal or healthy vacancy rate isn't fixed in time. So think of it. 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.

[Weylon Wong]

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.

[Adrienne Ma]

And then there are economists that take a completely different approach to quantifying the housing shortage. For 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 US if zoning regulations and other restrictions did not exist.

[David Wessel]

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.

[Weylon Wong]

That's a huge number, right?

[David Wessel]

It's 14% of the national housing stock.

[Adrienne Ma]

So we get all these different estimates for the housing shortage, which could make you think, like, okay, 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.

[David Wessel]

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.

[Weylon Wong]

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.

[Adrienne Ma]

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.

[Olivia Garcia]

It's the smallest of all the ones we looked at. We were like, okay, well, this is. This is going to be like tight living. But, you know, we're making it work for sure.

[Weylon Wong]

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.

[Adrienne Ma]

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.

[Olivia Garcia]

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.

[Weylon Wong]

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.

[Adrienne Ma]

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.

[Weylon Wong]

This episode was produced by Corey Bridges with engineering by Jimmy Keighley. It was fact checked by Sierra Juarez. Kate Kincannon is our show's editor and the indicator is a production of npr.

[David Wessel]

This message comes from Charles Schwab. When it comes to managing your wealth, Schwab gives you more choices like full service, wealth management and advice when you need it. You can also invest on your own and trade on thinkorswim. Visit schwab.com to learn more.

[Corey Bridges]

This message comes from PNC Private bank, whose steady, calculated approach to wealth management might sound boring, but the outcomes are anything but. PNC Private bank brilliantly boring since 1865. PNC Bank National association member FDIC this.

[David Wessel]

Message comes from NPR sponsor Merrill. Whatever your financial goals are, you want a straightforward path there. But the real world doesn't usually work that way. Merrill understands that. That's why with a dedicated Merrill advisor, you get a personalized plan and a clear path forward. Go to ML.combullish to learn more. Merrill, a Bank of America company what would you like the power to do? Investing involves risk Merrill Lynch, Pierce, Fenner and Smith Inc. Registered Broker Dealer Registered Investment Advisor Member SIPC.