The housing shortage in the United States continued to widen in 2025, with the national supply gap reaching an estimated 4.03 million homes, according to a new report released by Realtor.com.
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The findings, published in the company’s 2026 Housing Supply Gap Report, show that housing construction is still failing to keep pace with household formation and long-standing pent-up demand. Despite a relatively small annual shortfall between new housing starts and newly formed households last year, experts say more than a decade of underbuilding continues to strain the housing market.
The report was released from Austin, Texas.
In 2025, approximately 1.41 million new households were formed across the United States while 1.36 million housing starts were recorded. The resulting annual deficit of about 50,000 homes may appear small, but it contributes to a cumulative shortage that has grown steadily over the past decade.
Housing economists say the persistent imbalance between supply and demand has helped drive rising home prices and reduced affordability, especially for younger buyers attempting to enter the housing market.
"Even when annual construction and household formation are roughly balanced, the market is still digging out from more than a decade of underbuilding," said Danielle Hale, chief economist at Realtor.com. "A supply gap exceeding 4 million homes underscores how deeply rooted the shortage has become. Without a sustained and targeted increase in housing supply, particularly in areas with strong job growth and persistent demand, affordability challenges will continue to sideline many would-be buyers."
The 2025 shortfall represents the third-largest annual deficit since 2012, following major supply gaps recorded in 2020 during the pandemic and again in 2023. Analysts say the latest numbers highlight ongoing structural issues in the housing sector that have prevented meaningful progress in closing the deficit.
Another major factor driving the housing shortage is the large number of “missing” young households unable to establish independent living due to high housing costs and limited inventory.
The report estimates that 1.82 million Millennial and Gen Z households were missing in 2025, the highest level recorded in four years. Rising home prices, high down payments and limited affordable options have forced many young adults to delay forming households.
Among Americans between 18 and 44 years old, the share of individuals living with their parents remains significantly higher than in previous decades. Researchers found that the percentage of young adults living at home was 2.7 percentage points higher by age compared with the 2010–2014 period.
Affordability continues to be a major barrier to homeownership. In 2025, the minimum recommended income to purchase a median-priced starter home reached about $86,000, a figure that still exceeds the earnings of many first-time buyers. Meanwhile, the median down payment climbed to roughly $30,400, representing about 14.4% of a home’s purchase price.
At current savings rates, a household earning the median income would need approximately seven years to save for a typical down payment, the report found.
Because headship rates include both renters and homeowners, researchers say increasing the supply of affordable rental housing could also help relieve housing pressure by allowing younger adults to establish independent households sooner.
In fact, renting remains more affordable than purchasing a starter home in 49 of the 50 largest U.S. metropolitan areas, reinforcing the role of rental housing as an entry point for many young households.
Housing shortages are not evenly distributed across the country. The report shows that supply gaps differ significantly by region, reflecting variations in population growth, construction activity and regulatory barriers.
The South currently has the largest cumulative shortage with 1.62 million missing homes, followed by the Northeast with 952,000 homes, the Midwest with 865,000, and the West with 660,000.
However, when measured relative to new housing construction since 2012, the Northeast faces the most severe supply constraints, followed by the Midwest, the South and the West.
The Northeast was also the only region to show some improvement in 2025 as housing starts reached their highest level since 2015. Even with that progress, the region remains the most supply-constrained in relation to construction levels.
Housing construction remained historically strong in 2025 but still insufficient to close the supply gap.
About 1.5 million homes were completed last year, a level that remains elevated compared with long-term averages but slightly below the pace seen in 2024. Single-family housing completions remained largely unchanged year over year, while multifamily construction declined.
Total housing starts were relatively stable overall. However, single-family starts fell to about 940,000 units, the lowest level since 2019, while multifamily starts increased to roughly 415,000 units.
Builders continue to face a variety of structural obstacles that limit construction growth. These include zoning restrictions, permitting delays, labor shortages and high material costs, all of which can slow the development pipeline and raise housing prices.
Even so, there were some signs of improvement. The share of newly built homes considered affordable increased slightly from 45% in 2024 to 47% in 2025, while new home prices remained stable in the final quarter of the year.
Despite modest progress in construction activity, analysts warn that closing the nation’s housing deficit will take time.
According to the report, even under an optimistic scenario where housing construction increases by 50% above the 2025 pace and pent-up demand fully dissipates, it would still take approximately seven years to eliminate the current shortage.
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"While construction levels remain elevated compared with historical norms, they are not yet high enough, or targeted enough, to meaningfully close the gap," said Hannah Jones, senior economic research analyst at Realtor.com. "The fact that it would take roughly seven years to eliminate the deficit even under an optimistic building scenario highlights just how significant and persistent this shortage has become."
Housing advocates say addressing the issue will require a combination of higher construction activity, policy reforms and regulatory changes designed to accelerate development in high-demand areas.
To highlight the need for expanded housing supply, Realtor.com launched the Let America Build campaign in 2025. The initiative focuses on promoting policy changes that encourage new construction and remove barriers to development.
The campaign calls on lawmakers, builders and local communities to modernize zoning rules, reduce regulatory hurdles and streamline permitting processes in order to accelerate the creation of new housing.
Industry leaders say such reforms could play a key role in restoring balance to the housing market and helping future generations access homeownership.
Originally reported by Realtor in PR News Wire.
