Housing affordability and availability are top of mind for buyers and homeowners all over the country. Housing prices nationwide have increased about 25% since the start of the pandemic in 2020, which is largely a result of housing demand exceeding the current supply.

According to Freddie Mac, there’s a U.S. housing shortage of 3.7 million units as of the third quarter of 2024. In other words, there are 3.7 million more individuals or families who need homes than there are homes available for them.

Housing shortage trends vary dramatically across the country based on factors like job growth, new home construction, local zoning regulations, and more. Keep reading to learn which U.S. metro areas have the worst housing shortages right now and what that means for you.

TLDR: Key findings at a glance

• A housing shortage, also known as underproduction, is when there are fewer homes than there are people who need them.
• Riverside, CA; Oxnard, CA; and Yakima, WA are the three U.S. cities with the largest housing underproduction, as of 2022.
• Major metro areas, including Los Angeles, Washington, D.C., and Miami, are currently experiencing housing shortages for a variety of reasons.
• If you’re buying a home in an area with a housing shortage, it’s important to prepare for a longer timeline, stiffer competition, and higher sales prices.
• The exact cause of each metro area’s housing shortage varies – some are the result of fast job growth, while other areas have strict zoning laws that make building challenging.

What we mean by “housing shortage”

Housing shortage working definition 

A housing shortage is a situation where there aren’t enough homes to meet the current needs of a community. In other words, there are more people seeking homes than there are homes available. Housing shortages result in limited options for renters and buyers, increased competition for the homes available, and increasing home prices.

For the purposes of this article, we’ll focus on shortages in entire metropolitan areas, not specific neighborhoods. In each of the metro areas we’ll talk about, it’s likely that underproduction varies from neighborhood to neighborhood.

The two core metrics used

To understand housing shortages across the country, we used the 2024 Housing Underproduction in the U.S. Report from Up for Growth, which uses two key metrics to compare shortages: total underproduction, meaning the specific number of housing units the area lacks, and underproduction as a share of the total housing units available.

Up for Growth’s data shows us where housing shortages exist, but it’s also important to look ahead. The National Association of REALTORS’ Housing Shortage Tracker highlights areas where the number of new building permits falls far short of the number of new jobs created. This data shows where future shortages are likely, especially if these disparities continue.

The list: U.S. cities with the biggest housing shortages

In 2022, the last year for which Up for Growth has housing shortage data, the states with the most underproduction were California, Idaho, the District of Columbia, Utah, Oregon, Washington, New Jersey, New Hampshire, Colorado, and Minnesota. 

The table below breaks down the top 20 metro areas with the largest housing shortages, including both the number of missing units and missing units as a share of housing stock. As you can see, more than half of the most underbuilt cities are located in California. 15,4,010.36

Source: https://upforgrowth.org/apply-the-vision/housing-underproduction-reports/

Standout metros and why supply lags

Among the cities with major housing shortages, there are a few that stand out because they’re among the largest metro areas in the country. Some of these metro areas are short 100,000 or more units for their current demand. Below, you can see how these housing shortages compare to other current trends in those areas.

Riverside-San Bernardino-Ontario, CA

The Riverside metro area tops the list of the largest housing shortages in the study. It has more than 150,000 fewer housing units than it needs, which is more than 10% of its current housing inventory. 

Unlike many other metro areas, the Riverside metro area is adding new homes at a pace that almost keeps up with new job growth, according to NAR’s Housing Shortage Tracker, but it hasn’t been enough.

According to Zillow, the average home price in this area is $578,678, which is actually 2.5% lower than one year ago, yet more than 41% higher than five years ago.

Los Angeles-Long Beach-Anaheim, CA

Los Angeles is home to the second-largest metro area in the U.S. and the second-largest housing shortage, with an underproduction of 7.16% when compared to its current housing units.

Not surprisingly, new home permits aren’t keeping pace with job growth in Los Angeles. There’s currently just one new housing permit for every three new jobs in the area.

Like Riverside, average home prices in Los Angeles have fallen slightly in the past year to $942,799, but are up significantly from just a few years ago, according to Zillow.

Washington-Arlington-Alexandria, DC-VA-MD-WV

The Washington, D.C. metro area, the center of our federal government, had a housing shortage of just over 5.7% in 2022., with just one new housing permit issued for every four new jobs.

Unlike some other major metro areas, housing costs are up year over year in the D.C. metro area. They’ve risen 0.6% in the past year and 25% over the past five years, according to Zillow.  However, given the uncertainty in federal jobs that has materialized this year, this market is likely stabilizing and becoming more of a buyer-leaning market.

Minneapolis-St. Paul-Bloomington, MN-WI

The Minneapolis metro area is among the top 25 largest metro areas in the country. It had a housing shortage of more than 5% in 2022. Similarly, its new housing permits aren’t keeping pace with new job creation in the city.

Housing prices are up more than 2% in the Minneapolis metro area, according to Zillow, to $379,404. Over the past five years, prices are up nearly 24%.

Miami-Fort Lauderdale-Pompano Beach, FL

The ninth-largest metro area in the country, Miami, had a housing shortage of more than 5% in 2022. It also has among the biggest shortages of new housing production. According to NAR’s Housing Shortage Tracker, the city is issuing just one new permit for every 12 jobs in the city, which suggests the shortage is likely to worsen. In addition, the Miami area is a popular retirement destination, putting more pressure on an already taxed housing market. Housing prices in the Miami area have actually fallen nearly 5% in the past year to $471,192, according to Zillow, but are still up nearly 50% over the past five years.

Regional patterns that matter for buyers and owners

Sun Belt vs coastal dynamics

Sun Belt metro areas, which include Phoenix, Austin, Dallas, Atlanta, and Miami, have seen huge population growth in recent years. They are attracting both new residents and new jobs, but housing production can’t keep up. While these areas tend to have laxer regulatory constraints, they simply cannot build fast enough to keep pace with growth.

Coastal metro areas are experiencing a very different problem. Cities like Los Angeles, San Francisco, and New York have actually seen many people moving away from them. However, with still large populations and stiffer regulatory constraints, housing demand and pricing remain high.

Midwest and Mountain West

The Midwest has not experienced as extreme of a housing shortage as the rest of the U.S. . In fact, there are no midwestern cities in the top 20 metro areas with the worst housing shortages, and only one – Minneapolis-St. Paul-Bloomington – is in the top 30.

However, many areas here are not issuing new housing permits to keep up with job growth, which suggests that the housing shortage could worsen in coming years.

In the Mountain West, the problem is exactly the opposite. Several major Mountain West metro areas, including those in Washington, Oregon, Idaho, and Utah, are among the metro areas with the top housing shortages. However, the NAR Housing Shortage Tracker shows that new housing permits are keeping pace with job growth, suggesting the housing shortage could get better (or at least may not get worse).

What to watch next

Plenty of different factors affect housing demand and supply. Interest rate decreases could help affordability.  However, if rates continue to drop, demand could increase further, creating larger shortages and even higher prices. 

Other relevant factors include local labor shortages, the cost of materials, and local zoning laws. If local governments choose to change their zoning laws, they might ease some of their housing shortages. However, labor shortages and expensive materials, partially as a result of tariffs, could keep both underproduction and pricing high.

What a shortage means for your finances

No matter what your current situation, housing shortages can have an impact on your personal finances. Here are some things you should know about how a local shortage could affect you.

Buying in a tight market

If you live in a metro area with a major housing shortage, buying a home can be a challenge. You are more likely to come up against stiff competition and high prices.

In these areas, it is critical to have your budget and financing in place ahead of time. Consider using strategies like buydowns and rate locks to minimize your costs wherever possible.

Know that it may also take a bit longer to buy your first home in an area with a housing shortage. You are more likely to end up in bidding wars, where multiple buyers drive up final sale prices, and you may be competing against all cash offers.

The good news is that, even in some of the metro areas with the largest shortages, average home prices have fallen and interest rates are down, which could make now a good time to buy.

Current Homeowners

If you are already a homeowner, a local housing shortage could increase the equity in your home as limited supply and high demand push property values higher.

As your home value increases, you have some unique options. For example, you may have more access to equity in the form of home equity loans, home equity lines of credit, or cash-out refinances. Depending on how you use the funds, you could even enjoy some tax benefits.

Another thing to consider is whether you want to sell your home. While finding a new home can be a challenge, you have the benefit of already being in the housing market, meaning you get to enjoy the increased equity in your current home and may not be in quite as much of a rush.

Finally, consider whether you want to simply continue living in your home and watch your equity grow. Your home can be one of your biggest assets during retirement, and rising home values only help.

If you are deciding where to move

If you are planning a move and haven’t decided on your destination, doing some research and being informed of local housing trends will help. The severity of local housing underproduction affects competition and pricing. It may take you longer to buy a home in a high-shortage area, and you could end up paying more for it. 

You can use NAR’s Housing Shortage Calculator to see which areas are building a lot of new homes.

Local housing trends may not affect where you plan to move, but at the very least, you can use these trends to inform you of what you should expect during your housing search so you can budget and plan accordingly. 

Talk with an advisor

A housing shortage affects far more than just your home price – it could also affect big-picture and long-term financial planning. It impacts your cash flow and how much money you have available to put toward your other financial goals.

Speaking to a financial advisor can help evaluate your next move, including whether to buy or sell a home and how to time it right. The right professional can also help you set a reasonable budget based on your financial situation and goals.

If you’re ready for individualized guidance, schedule a consultation with a Wealth Enhancement advisor today.

FAQ

What causes a housing shortage in a city?

Many different factors can contribute to local housing shortages, including population growth, slow building, restrictive zoning laws, and high construction or labor costs. The exact causes vary from city to city. For example, some cities see slow population growth, but high costs and restrictive zoning laws make building a challenge. On the other hand, some locations have lax local regulations, but simply can’t keep up with their fast population growth.

How do researchers measure housing shortages?

There are several different ways to measure a housing shortage. Some datasets look specifically at the number of people looking for homes compared to the number of homes available, while others look at new housing permits compared to job and population growth.

Which U.S. city is most underbuilt right now?

The Riverside-San Bernardino-Ontario, CA metro area currently has the worst housing shortage in the country, with a shortage of more than 10% compared to its current housing units.

Are shortages improving in 2025?

Housing shortage trends vary from city to city. According to Up for Growth, housing underproduction actually improved by 50,000 homes from 2021 to 2022, suggesting the housing shortage is getting better. However, because data is so location-specific, shortages are still worsening in some areas. 

How does a shortage affect home prices and rents?

Housing shortages create an imbalance between supply and demand. There are more people looking for homes than there are homes available, which causes home prices and rents to rise. However, several metro areas with major shortages have actually seen their housing prices decline in the past year, which is promising for buyers.

What should buyers do in a low-inventory city?

If you live in a low-inventory city, you should prepare for home-buying to take a bit longer. You should also revisit your budget to see how much you can afford. Low supply and high demand can cause prices to increase, and it’s important to be ready to navigate these higher prices.

Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual.

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