New report finds household formation outpacing construction, with younger buyers facing mounting affordability barriers.
By yourNEWS Media Newsroom
The nation’s housing deficit expanded in 2025 as construction activity again failed to keep pace with demand, pushing the estimated supply gap to more than 4 million homes, according to a new analysis.
Realtor.com’s 2026 Housing Supply Gap Report, released March 3, found the shortage grew to approximately 4.03 million homes in 2025, up from 3.8 million the prior year. The increase comes despite elevated construction levels compared with long-term historical averages.
Data in the report show that nearly 1.41 million new households formed in 2025, while housing starts totaled about 1.36 million. Researchers said that even when those figures appear roughly aligned in a single year, the market remains constrained by years of underbuilding.
“Even when annual construction and household formation are roughly balanced, the market is still digging out from more than a decade of underbuilding,” Realtor.com Chief Economist Danielle Hale said in the report.
“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,” Hale said.
The report measured the deficit by evaluating new construction, household formations, and pent-up demand. Analysts said 2025 marked the third-largest annual housing shortfall since 2012, excluding the pandemic-driven spike in 2020 and the elevated gap in 2023.
The shortage has disproportionately affected younger households. According to the findings, about 1.82 million millennial and Generation Z households were unable to secure housing opportunities because of limited supply and elevated costs. The share of young adults living with parents was 2.7 percent higher by age compared with the 2010–2014 period.
Affordability remained a primary barrier. The report estimated that a household would need an income of nearly $86,000 to afford a median-priced starter home in 2025. While declining mortgage rates reduced the required income by roughly $8,000 compared with the prior year, that threshold remains beyond the reach of many younger buyers.
Median down payments averaged $30,400. At median income levels, households would need approximately seven years to save that amount. As a result, renting remains less expensive than purchasing a starter home in 49 of the 50 largest metropolitan areas, the report found.
Regionally, the South recorded the largest estimated shortfall at 1.62 million homes. The Northeast followed with 952,000, the Midwest with 865,000, and the West with 660,000. While the Northeast generally has higher home prices, it was the only region to show improvement in both missing young households and its overall supply gap in 2025.
Construction data reviewed in the report show that approximately 1.5 million homes were completed last year, slightly behind 2024 levels. Single-family completions were flat, while multifamily completions declined. Single-family housing starts dropped to 940,000, the lowest level since 2019, while multifamily starts rose to 415,000.
“While construction levels remain elevated compared with historical norms, they are not yet high enough, or targeted enough, to meaningfully close the gap,” Realtor.com Senior Economic Research Analyst Hannah Jones said in the report.
“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,” Jones added.
Builders continue to face zoning constraints, permitting delays, labor shortages, and higher material costs, according to the report. Although the share of new homes categorized as affordable increased from 45 percent in 2024 to 47 percent in 2025, pricing for new construction remains a limiting factor for many buyers.
The report estimates that even if construction increased 50 percent above 2025 levels and pent-up demand fully eased, it would still take approximately seven years to close the current gap.
To address the shortage, the report recommends increasing housing production in areas with the strongest demand and expanding affordable housing supply.
Realtor.com’s Let America Build initiative, launched last year, aims to highlight housing shortages nationwide and encourage zoning modernization and streamlined permitting. The campaign also issued a state-level report card evaluating construction and affordability efforts.
South Carolina received an “A” grade for affordability, with a median home price of $354,429. Iowa and Texas also earned “A” ratings, while several Midwestern and Southern states received “B” grades. Rhode Island, Massachusetts, New York, California, and Hawaii received “F” grades, with Hawaii posting the highest median price at $822,065. Montana earned a “D,” and Alaska a “C-minus.”
The findings underscore ongoing challenges in aligning housing supply with demographic demand as policymakers and builders confront structural and economic constraints.
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