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 is deep, driven by zoning, tight credit, thin labor and costly materials

The United States faces a nationwide shortfall in housing that is large and growing. Estimates show there are roughly 4.7 million fewer homes than families, leaving many areas with scarce and unaffordable places to live. The shortage is especially acute where jobs are plentiful, and it has helped push displacement, higher living costs, and slower economic mobility. While one advocacy movement focuses on loosening land rules, experts say fixing zoning alone will not restore a healthy homebuilding industry.

Key facts up front

• Zoning and land rules restrict apartment building on about three-quarters of residential land and often force single-family lots to be large, which raises costs.
• Construction financing tightened after the 2008 crash and never fully recovered; the dollar value of residential construction loans fell by about 55 percent between 2008 and mid-2024.
• Labor shortages and rising material prices since the late 2000s have increased costs and delayed projects.
• Builder confidence remains low: a widely tracked builder sentiment index sat at 32 in August 2025 and has been below the 50 breakeven for many months.

Why zoning matters but is not the only problem

A loose coalition of housing advocates argues that much of the shortage is mandated by law. Zoning that bans apartments over large swaths of cities, parking rules that make multifamily projects costly, and density limits that require large single-family lots all reduce how much housing can be built. Studies cited by reformers estimate regulation can account for a large share of development cost, with one analysis finding about 40.6 percent of the cost of a typical multi-family project tied to regulatory requirements.

Reforms that relax those rules, sometimes called upzoning, have passed in several states and local governments. Reformers prioritize these changes because they are relatively low-cost for local budgets and can increase property tax revenue as new units are added.

Other forces have depressed homebuilding since 2008

Homebuilding fell sharply after the mid-2000s crash, and starts never returned to the prior peak. That collapse was driven by the mortgage crisis and recession, and it remains part of why current supply lags demand. Since then, a number of persistent constraints have held back recovery:

• Credit and financing: Banks and lenders now price construction lending to account for higher perceived risk. The volume of construction lending has been much lower than before the crash, and when policy rates rose in 2022, builders faced sharper financing headwinds.
• Labor: The construction workforce lost nearly a million jobs after the recession and has been difficult to rebuild. Fewer young workers and lower immigration of tradespeople have tightened supply and pushed wages up.
• Materials: Lumber mills closed after the recession and could not fully scale back up when demand returned, contributing to higher prices. Tariffs on some inputs have further raised costs for builders and suppliers.

Market indicators and recent activity

Recent monthly data show mixed signals. In July 2025, housing starts reached a seasonally adjusted annual rate of 1,428,000 units, a month-over-month increase that was driven mostly by multifamily building. Single-family starts also rose, though permits overall fell that month, suggesting the uptick in starts may not be sustainable. Builders are responding by using more sales incentives and cutting prices in many markets, and many firms face weak buyer traffic while mortgage rates remain elevated.

Why builders still need good returns

Building homes is a risky, concentrated business that often requires large loans and long timelines. Unlike a diversified stock investment, developers place big bets on single projects and need sufficient expected returns to justify those risks. Making it legal to build more units does not by itself make every project profitable; land-use reform reduces the minimum rents or prices a building needs to clear, but other constraints determine whether projects actually get financed and built.

Policy approaches beyond zoning

Experts point to a menu of complementary policies to increase production and affordability:

• Public financing: Local governments can offer favorable loans or financing packages to developers in exchange for long-term income shares, then reinvest that income into new projects. A few jurisdictions have piloted municipal financing to boost multifamily development.
• Federal loan programs: Governments could create counter-cyclical loan tools, for example long-term, low-rate mortgages for multifamily construction when starts fall below set levels.
• Tax incentives: Accelerated depreciation and similar rules can redirect private capital into rental housing by lowering tax costs for investors.
• Labor and immigration: Expanding pathways for skilled trades workers, boosting vocational training, and encouraging immigration of tradespeople can ease workforce shortages.
• Materials policy: Reducing or suspending tariffs on lumber, steel and other inputs can lower project bills. Increasing factory-style construction and aligning local codes can raise productivity.
• Safety net for the poorest: Increased housing supply alone will not make shelter affordable for the indigent. Cash transfers, rental subsidies, and public housing remain necessary tools.

What history suggests

Past housing booms show that public subsidy and cheap credit can spur large increases in building. When governments combined generous tax and credit support with lower interest rates, multifamily construction expanded quickly; when those supports were removed and rates rose, construction slowed. This history implies coordinated policy on credit, taxes and regulation can change industry behavior more than any single change alone.

Bottom line

Removing unnecessarily strict land rules can unlock development potential and is a central part of a broader agenda to close the housing gap. But zoning reform should be paired with solutions for financing, workforce, materials, and targeted help for low-income renters. Without coordinated, wide-ranging action, the current shortfall and its social and economic costs are likely to persist.

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FAQ

Key features at a glance

Issue	Effect	Representative evidence or metric
Zoning and land-use	Limits where apartments can be built, raising scarcity and prices	Apartment building prohibited on roughly 75% of residential land in many places
Financing	Less available and more expensive construction credit	Construction loan volume down about 55% since 2008 to mid-2024
Labor	Fewer skilled workers, higher wages, delayed projects	Nearly 1 million construction jobs lost after 2007–2011 downturn
Materials	Higher input costs; supply bottlenecks	Mill closures and tariffs raised lumber and metal prices
Market sentiment	Builder confidence weak, more incentives and price cuts	Builder sentiment index at 32 in Aug 2025; 66% using sales incentives
Policy response mix	Land reform helps but must be paired with finance, tax, labor, and subsidies	Examples: municipal financing pilots, accelerated depreciation, trade and training adjustments

Deeper Dive: News & Info About This Topic

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