The U.S. housing market continues to grapple with a persistent housing shortage, and it’s one of the biggest reasons behind today’s housing affordability crisis. Even as mortgage rates rise and buyer demand shifts, limited housing supply keeps prices high and homeownership out of reach for many families. Without addressing this imbalance, affordability challenges are likely to persist for years to come.

The Supply and Demand Gap

The root of the problem is simple: demand far outpaces supply. Over the last decade, the country has underbuilt an estimated 3 to 5 million homes. After the 2008 financial crisis, new construction slowed dramatically, and builders never fully recovered. This supply gap means buyers are competing for fewer homes, which drives up housing prices even in slower markets.

High Building Costs Limit New Supply

Another factor worsening the shortage is the rising cost of new construction. Builders face higher prices for materials, labor shortages, and regulatory hurdles that make development more expensive. To maintain profitability, many developers focus on higher-end homes, leaving fewer affordable housing options for entry-level buyers. This trend pushes younger households and first-time buyers further away from homeownership.

Affordability Ripple Effects

The consequences extend beyond buyers. Renters are also squeezed, as limited housing supply pushes rents higher. Households that might have transitioned into homeownership remain in the rental market, adding more demand pressure. With both rents and home prices rising faster than wages, families spend a greater share of their income on housing, leaving less for savings, healthcare, or education.

Long-Term Solutions for the Housing Shortage

Solving the housing shortage will require coordinated efforts from policymakers, builders, and communities. Possible solutions include easing zoning restrictions, offering incentives for affordable housing development, and streamlining building approvals. Expanding the supply of entry-level housing is critical to making the market more balanced and affordable.

The lingering housing shortage is a major driver of ongoing housing affordability challenges. Until more homes are built—especially affordable options—prices will remain elevated and many households will continue to struggle. While mortgage rates and economic trends matter, the ultimate solution lies in expanding the housing supply to meet America’s growing needs.