The Tricky Business of Quantifying the U.S. Housing Shortage

The Housing Affordability Crisis

In the current U.S. political landscape, housing affordability has emerged as a central concern. As highlighted by the story of Olivia Garcia, a resident of Los Angeles who opted for travel over exorbitant local rents, the search for housing is often described as "nightmarish." Despite returning to the U.S., Garcia found that the available options remained "pretty slim," reflecting a widespread national consensus that the country is suffering from a severe housing shortage.

The Mathematical Conundrum of Supply

While politicians frequently cite figures such as "1.5 million, 3.8 million, or 5.5 million" in missing homes, David Wessel of the Brookings Institution points out that these numbers are far from settled. The difficulty in defining the shortage stems from several "economic brainteasers":

• Ambiguity in Vacancy Rates: The primary method for calculating shortages involves analyzing vacancy rates. However, defining a "vacant" home is complex. Estimates often struggle to differentiate between "vacation homes"—which might be empty during off-seasons—and homes that are "vacant but unavailable," such as those undergoing estate management after a death.
• The Problem of 'Normal': Determining a "healthy" vacancy rate is an "analytical worm" because what constitutes normal changes over time. Improvements in real estate technology and online listing services mean houses may stay vacant for shorter periods, a nuance often ignored by standard models.
• Alternative Methodologies: Some researchers, such as those at the American Enterprise Institute, bypass vacancy rates entirely by modeling how many homes should exist if not for restrictive "zoning regulations." Their estimate, which suggests a deficit of 20 million homes, represents a massive "14 percent of the national housing stock," illustrating how different methodologies produce wildly divergent results.

The Fallacy of a National Number

Ultimately, Wessel argues that a singular national figure for the housing shortage is largely "meaningless." Because housing is inherently a local issue, a national statistic "glosses over the differences" between states, cities, and neighborhoods. He suggests that the most effective policy interventions must occur at the "state and local zoning level" rather than through broad federal generalizations.

Local Solutions: The Rise of ADUs

As states like California grapple with what Governor Gavin Newsom calls the state's "original sin" of housing affordability, creative solutions have emerged. Olivia Garcia eventually secured a 400-square-foot converted garage, known as an "accessory dwelling unit" (ADU). These units—also referred to as "granny flats" or "casitas"—are increasingly viewed as a practical way to bridge the affordability gap.

Following legislation passed in 2016, California has incentivized the creation of these units on residential lots. While living in such tight quarters requires adaptation, as Garcia noted, features like private patio areas can make a small space feel livable. Wessel concludes that the true measure of success for such policies should not be found in abstract vacancy statistics, but in the tangible movement of "home prices and rents" within local markets.