Zoning alone won’t close U.S. housing shortage, experts say

U.S. housing shortage driven by zoning, financing, labor, and materials

The United States faces a large and growing housing shortfall that is shaping where people can live and whether they can afford to stay near jobs. There are about 4.7 million fewer housing units than families in the country, according to a recent national estimate. Short supply has pushed up prices, sped displacement, and limited economic opportunity in many growing places.

What is causing the shortage — the big picture

Multiple forces have combined since the late 2000s to slow housing production. Key factors include local land‑use rules that limit where and what kind of housing can be built, tighter and more costly construction finance after the financial crash, a persistent shortage of construction workers, and higher material costs. Experts argue that no single fix will solve the problem.

Zoning and regulatory barriers

Advocates for more housing say that many land‑use rules are a major constraint. Rough estimates indicate that apartment buildings are effectively banned on about three‑quarters of residential land in many places. Rules that require spacious single‑family lots, strict parking mandates, and other regulations often make multi‑family projects expensive or impossible on many parcels. A widely cited research estimate found that roughly 40.6 percent of the cost of developing a multi‑family project can be traced to regulation.

The YIMBY movement and reforms

A loose coalition of groups and analysts pushing for more housing supply has won victories at local and state levels in some states. Their core claim is that changing land‑use rules — by allowing smaller lots, denser housing, and fewer parking rules — would increase supply and lower costs. Supporters still recognize that regulation is not the only problem and that building takes money, materials, and people.

Why zoning alone does not explain the drop in building

Homebuilding plunged after the mid‑2000s housing crash and the Great Recession. Municipal rules did not suddenly tighten in 2006, and many restrictive zoning practices predated the 21st century. Research tracking regulatory change shows some tightening of density rules after 2006, but not enough to explain the entire long‑term slowdown. That points to other forces — most importantly financing and labor — as central to the decline.

Financing tightened after the crash

Construction finance became harder and more expensive after the crash. Banks pulled back on risky construction lending and regulators made such loans costlier to originate. One industry measure shows that the dollar value of residential construction loans fell roughly by half from 2008 through the mid‑2020s. Low policy rates from central bank actions helped make construction cheaper for a long stretch, but when rates rose sharply beginning in 2022, building activity slowed again.

Labor shortages and materials costs

The construction sector lost nearly one million workers in the Great Recession. Many did not return to the trades, some retired early, and immigration of skilled tradespeople has been lower. Fewer workers raise wages and force builders to delay or cancel projects. On the materials side, sawmills closed after the recession and production capacity stayed smaller even as demand recovered, putting upward pressure on lumber and other inputs. Tariffs on some imported materials have also pushed costs higher in recent years.

Recent market signals

Some monthly data show mixed signs. In mid‑2025, housing starts rebounded to a seasonally adjusted annual rate above 1.4 million units, up from the prior month and higher year over year, driven mostly by multi‑family projects. But building permits edged down in the same period, suggesting the rebound in starts may not hold. Builder sentiment measurements in 2025 remain weak, with the industry reporting more pessimism than optimism about current sales and near‑term prospects.

Why builders hesitate even when rules loosen

Development is a risky, leveraged business. Unlike broadly diversified financial investments, building a project requires large, illiquid bets on a single asset. Developers need a high enough expected return to cover those risks. Critics of deregulation warn that simply making denser construction legal does not guarantee it will be profitable. Supporters counter that easing rules lowers the fixed costs of building and therefore reduces the minimum rents or prices needed to make a project viable.

Policy options beyond zoning

Analysts stress that a broader policy menu is required. Ideas include municipal or federal programs that provide lower‑cost or longer‑term construction and rental financing, targeted tax incentives like accelerated depreciation to attract capital, and direct public investment in affordable stock. Examples exist where local governments have offered favorable financing to multi‑family projects in exchange for long‑term public returns. To rebuild the construction workforce, policy options include expanded immigration for skilled trades, more vocational training, and efforts to raise productivity through factory production and modular methods. Removing tariffs on key inputs is another proposed step to cut materials costs.

Limits and social policy

Increasing production will not fully solve affordability for the poorest households. A comprehensive housing strategy will also need tools that boost low‑income households’ ability to pay, such as direct cash support, rental subsidies, or expanded social housing. Legal and regulatory reform remains a key priority because it can be relatively low‑cost and often increases local tax revenues, which can then be recycled into other housing programs.

Bottom line

The housing shortage is complex and has roots in law, finance, labor, and supply chains. Land‑use reform is necessary but not sufficient. A mix of regulatory change, public finance, workforce policy, and material‑cost measures will be needed to raise production at scale and to protect affordability for lower‑income households.

Key features at a glance