The United States needs at least 1.5 million additional homes, and likely many more, to relieve the nation’s housing shortage, according to Freddie Mac.
The United States needs at least 1.5 million additional homes, and likely many more, to address the nation's housing shortage, according to Freddie Mac.
In the first quarter of 2024, the homeowner vacancy rate fell to 0.8% from 0.9% in the previous quarter, the mortgage buyer reported in a recent housing market analysis. This rate is significantly lower than the 1.6% average vacancy rate recorded from 1994 to 2003, which the report uses for comparison, and is near the all-time low reached earlier last year.
Meanwhile, the rental vacancy rate remained steady for the third consecutive quarter at 6.6%, down from 8.2% during the historical comparison period. Rental vacancies hit four-decade lows in 2021 and 2022 and increased slightly last year.
"To bring the vacancy rate, both rental and homeowner, back in line with historical averages, the U.S. would need to add an additional 1.5 million vacant for-sale and for-rent homes," the report states. "Without such units, the pressure on housing markets will persist."
Despite higher mortgage rates, the housing market remains extremely tight due to a shortage of homes for sale. Earlier this week, the benchmark index tracking U.S. home prices reached a new all-time high, after surging 47% in the past four years.
Homebuilders have responded by constructing many new units but have failed to keep pace with demand. Freddie Mac estimates the nation's current housing stock at 146.4 million units, an increase of 1.6 million units from one year ago.
However, most of those newly built units were rentals, the report notes. Rentals accounted for about 1 million of the units constructed over the past year, while owner-occupied homes grew by just 600,000.
The National Association of Home Builders (NAHB) has blamed several factors for stifling construction, including excessive regulations, inefficient local zoning rules, and costly building codes.
"With a nationwide shortage of roughly 1.5 million homes, the lack of housing units is the primary cause of growing housing affordability challenges," said NAHB Chief Economist Robert Dietz last week. "Policymakers at all levels of government need to enact policy changes that will allow builders to construct more homes, such as speeding up permit approval times, providing resources for skilled labor training, and fixing building material supply chains."
The Freddie Mac report warns that the estimated shortfall of 1.5 million homes "is almost certainly a dramatic underestimate of the total housing shortage" because it does not account for latent demand and vacant housing that is not on the market for sale or rent.
In a 2021 report, the government-backed mortgage buyer estimated that the U.S. needed an additional 3.8 million units to achieve a target vacancy rate of 13%. That report cited a long-term decline in the construction of single-family homes and an even sharper decline in the construction of entry-level homes of less than 1,400 square feet.
