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

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

Bottom line: The United States faces a large and growing shortfall of homes. The gap is the result of multiple, overlapping problems — strict land‑use rules, tighter construction finance, a long shortage of skilled labor, and higher materials costs. Fixing zoning alone will help but will not by itself return production to past highs or make housing affordable for everyone.

How big is the shortfall

A recent national analysis shows there are roughly 4.7 million fewer housing units than families in the country. Construction has failed to keep pace with demand for decades, leaving dwellings especially scarce where job opportunities concentrate. That scarcity has pushed up rents and home prices, added to displacement, and weighed on economic growth and social mobility.

Main causes, listed up front

The current shortage stems from a mix of four main constraints:

• Land‑use regulations: Rules such as zoning, minimum lot sizes, and parking mandates limit what can be built on most residential land. Rough estimates indicate apartment construction is effectively banned on about 75% of residential land in many places, and some studies find that regulatory rules add a large share of total development cost.
• Financing: Lenders pulled back on construction loans after the financial crisis, and the overall dollar value of residential construction lending fell sharply in the years that followed. Cost and availability of credit remain major constraints for builders.
• Labor shortages: The construction industry lost many workers during the recession that began in 2007–2008 and has struggled to replace them. Lower immigration of trade workers, retirements, and weak recruitment of younger people into the trades have tightened labor markets and pushed wages up.
• Materials and supply chains: Prices for lumber and other inputs rose when demand returned but supply did not fully recover. Tariffs and closed mills increased costs on top of those supply issues.

Why zoning matters — and why it is not the only problem

Advocates who want to expand housing supply argue that much of the shortage is legally mandated. They point to density restrictions, minimum lot and unit sizes, and parking rules as barriers that make multi‑unit buildings impossible or prohibitively expensive in many neighborhoods. Some policy analyses estimate that regulation accounts for a significant share of multi‑family development costs, and that relaxing rules would reduce the minimum rents or prices needed for projects to pencil out.

At the same time, the slowdown in construction began around the subprime mortgage crisis and the Great Recession, not from sudden new zoning laws. National housing starts plunged in the late 2000s, years when municipalities did not uniformly tighten zoning. Since then, density restrictions have become more common in some places and the regulatory cost of building rose, but changes in land use alone are unlikely to explain the full, long decline in starts.

Financing and interest rates

After the financial crisis, banks and regulators made construction lending more costly and more conservative. Data show the aggregate dollar value of residential construction loans dropped by about 55% between 2008 and mid‑2024. Low interest rates for much of the 2010s helped mitigate financing problems, but the rapid rise in rates beginning in 2022 slowed construction again by making mortgages and project financing more expensive.

Labor and materials

The construction workforce shrank by nearly 1 million jobs between 2007 and 2011. Many workers left the trades permanently or moved away, and recruitment into skilled trades has lagged. This shortage raises labor costs and delays projects even when other pieces are in place. On materials, the shuttering of sawmills and tariffs have contributed to elevated lumber and metals prices, further pushing up costs.

Recent market signals

Housing starts rebounded in mid‑2025, reaching an annual rate of about 1,428,000 units in July 2025, up 5.2% from June and 12.9% from a year earlier. The gain was led by multi‑family construction. Permits, however, dipped by 2.8% in the same month, suggesting that the uptick in starts may be uneven or short‑lived. Builder sentiment remains weak, with a widely used builder confidence index at 32 in August 2025, below the neutral 50 mark for months, and many builders increasing sales incentives and cutting prices.

What policy makers can do beyond zoning

Experts argue that a broad set of policies will be required to raise production and improve affordability:

• Make financing easier for builders: Public loan programs or municipal financing can reduce the cost of capital for multi‑family projects. Some local governments have provided below‑market loan terms in exchange for future revenue streams to seed further building.
• Tax incentives: Faster depreciation or targeted tax rules can attract capital to rental and multi‑family construction.
• Address labor shortages: Expanded immigration pathways for skilled trades, more funding for vocational training, and policies to make trades jobs more attractive to younger workers.
• Cut material costs: Reducing or lifting tariffs on lumber and metals and supporting domestic capacity where feasible could lower input prices.
• Boost construction productivity: Standardizing codes, encouraging modular and factory‑built methods, and investing in technology can raise output per worker.

Limits and trade‑offs

Increasing supply alone will not guarantee affordability for the poorest households. Market building will rarely serve those who cannot pay basic rents, so broader social supports — such as cash transfers, rental subsidies, or direct social housing — will remain necessary. Still, easing unnecessary regulatory barriers can raise municipal tax revenue and make it cheaper to build, freeing funds that cities could reinvest into affordable housing programs.

Bottom line and outlook

The housing shortage is a multi‑headed problem. Relaxing land‑use rules is an important and cost‑effective step that many advocates prioritize, but it must be coupled with financing, labor, materials, and productivity reforms to restore sustained building at scale. Short‑term recovery in starts can be fragile, as permits and builder confidence show. Long‑term progress depends on policy coordination across federal, state, and local levels and on the choices of private capital and construction firms.