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By Giulia Carbonaro
Senior Reporter
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Despite the recent rise in inventory across the country, the U.S. is still missing millions of homes to fix the current gap between supply and demand—with Hawaii and California facing the most acute shortage, according to a new study by the American Enterprise Institute (AEI) Housing Center.
Some reports found that the U.S. housing market is short of 3.8 million homes; others say it needs an additional 8.2 million homes to be balanced. Researchers at AEI have assumed that the housing shortage can currently be placed somewhere in the middle of these two figures, estimating that the country needs 6 million homes to fix the existing gap.
According to their analysis, roughly two million of these homes can be traced back to the Golden State and its neighbors.
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Hawaii And California Facing Most Acute Shortages
AEI researchers calculated the severity of the inventory shortage by state, considering how the estimated six million missing homes are distributed across counties based on each area's median price-to-income ratio. This, they say, offers "a proven proxy for housing affordability."
Hawaii has the most acute housing shortage in the nation, with a current housing supply of 572,042 units and an estimated 80,856 homes missing from the market—about 14.1 percent.
California followed with a shortage of 1,801,207 homes over a total supply of 14,762,527 units, about 12.2 percent. The third- and fourth-highest shortages were reported in the Northeast. The District of Columbia's shortage is estimated at 8.7 percent of its current inventory of 367,125 homes, or 32,049 units. New York is missing an estimated 735,568 homes, or about 8.5 percent of the 8,631,232 units now available.
Ten states—West Virginia, Iowa, Kansas, Ohio, Indiana, Oklahoma, Mississippi, Nebraska, Michigan and Missouri—had shortages of less than 1 percent. West Virginia reported the lowest shortage of homes in the country, about 0.3 percent of housing units available.
A Self-Inflicted Crisis
Both Hawaii and California have massively underbuilt compared to demand over the past few decades, leading to the rising unaffordability of housing in the two states, which has left even successful professionals struggling to rent or buy.
In both states, restrictive zoning, burdensome permitting processes and a Not in My Backyard (NIMBY) resistance to new construction projects have stifled new developments, keeping inventory extremely tight.
The AEI study found that if California and what they call its "blast zone"—10 other coastal states including Washington, Oregon, Idaho, Montana, Nevada, Utah, Wyoming, Colorado, Arizona, and New Mexico—had kept supply levels similar to that of the rest of the country over the past decades, the nationwide housing shortage would have been nearly one-third lower.
California alone is responsible for adding 1.4 million homes to the nationwide shortage, the study concluded. According to AEI researchers, this would make the Golden State "the single largest contributor to America's housing crisis."
The crisis in the state has spilled over to its neighbors, researchers said.
Over the past 30 years, a growing number of California residents have been moving to neighboring states, looking for more affordable housing and a cheaper cost of living, according to IRS data. Overall, the state has lost more than three million taxpayers and their dependents to the blast zone states in the past three decades.
Smaller states like Nevada and Idaho, along with Oregon and Arizona, have been absorbing the majority of the residents escaping California, who have inevitably driven up home prices and exacerbated locals' affordability problems.
In Nevada, the housing shortage is currently estimated at 6.6 percent; in Idaho, it is at 6 percent; in Oregon, it is at 7.2 percent; and in Arizona, it is at 5.2 percent.
For the researchers, the solution to the U.S. housing shortage should start in its epicenter, California and the West. "Fixing America's housing crisis demands boosting supply in the places with the most severe shortages," they wrote in the report.
"This can happen by unleashing the private sector through what we call the Housing Abundance Success Sequence: allowing smaller lot sizes in new subdivisions, enabling single-family-to-townhome conversions in expensive neighborhoods, and adding mixed-use zoning in underutilized commercial corridors—done by right, and kept short simple without micromanaging."
By their estimates, these measures could close the West's housing shortage within a decade.
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