The U.S. construction industry missed its mark again as the country’s housing-supply gap grew to an estimated 4.03 million homes in 2025 from 3.8 million in 2024.
Realtor.com’s 2026 Housing Supply Gap Report, issued on March 3, indicates that construction once again fell short in meeting housing demands, particularly from younger households. The data shows nearly 1.41 million new households were formed last year, compared with just 1.36 million housing starts.
“Even when annual construction and household formation are roughly balanced, the market is still digging out from more than a decade of underbuilding,” Realtor.com chief economist Danielle Hale said in the report.
“A supply gap exceeding 4 million homes underscores how deeply rooted the shortage has become. Without a sustained and targeted increase in housing supply, particularly in areas with strong job growth and persistent demand, affordability challenges will continue to sideline many would-be buyers.”
In measuring the supply gap, Hale said they considered new home construction, household formations, and pent-up housing demand. Last year marked the third-largest annual housing deficit since 2012, with the exception of 2020 and 2023—with 2020 as the largest single-year gap during the pandemic.
According to the report, 1.82 million millennial and Gen Z households missed out on opportunities to secure housing due to the shortage, as limited supply and high costs have delayed independent living. As a result, the share of young adults still living with parents skewed 2.7 percent higher by age than during the 2010–2014 period.
Hale noted that affordability remained challenging in 2025, with the minimum recommended income to buy a median-priced starter home at nearly $86,000. While declining mortgage rates contributed to an $8,000 drop in the minimum required income, that threshold still remains above the earnings of many younger households.
With median down payments averaging $30,400, median-income households would need to save for about seven years in order to make that payment. Consequently, renting often remains more affordable than buying a starter home in 49 of the 50 largest U.S. metropolitan areas.
Regionally, the South has the largest deficit of homes at 1.62 million, followed by the Northeast at 952,000, the Midwest at 865,000, and the West at 660,000. While home prices typically skew higher in the Northeast, the report showed the region was the only one to experience improvement in missing young households and overall supply gap last year.
The report’s review of the construction industry last year indicated 1.5 million homes were completed, but fell behind 2024’s pace. Single-family completions remained flat, while multi-family completions declined. Analyzing housing starts, those for single-family homes fell to 940,000—the lowest level since 2019, but multi-family starts saw an increase to 415,000.
“While construction levels remain elevated compared with historical norms, they are not yet high enough, or targeted enough, to meaningfully close the gap,” Realtor.com senior economic research analyst Hannah Jones said in the report.
“The fact that it would take roughly seven years to eliminate the deficit even under an optimistic building scenario highlights just how significant and persistent this shortage has become.”
Jones added that builders faced several challenges, including zoning restrictions, permitting delays, labor shortages, and inflated material costs. While the share of new homes considered to be affordable grew from 45 percent to 47 percent from 2024 to 2025, new construction home prices continued to limit buyer activity.
“Even under an optimistic scenario in which construction increases 50 percent from the 2025 pace and pent-up demand fully dissipates, it would take roughly seven years to eliminate the current deficit,” the report stated.
In order to close the housing supply gap, the report contends, construction should be increased in those areas where demand is the strongest, and should include an expansion of affordable housing supply.
Meanwhile, Realtor.com’s Let America Build campaign, launched just last year, is designed to spotlight the urgent need for housing expansion throughout the nation and advocate for lawmakers, builders, and communities to remove red tape to modernize zoning and streamline permitting for new construction where it is most needed.
It also produced a state report card ranking housing construction and affordability efforts. South Carolina topped the affordability list with an “A” grade and a statewide median home price of $354,429. Other “A” graders listed were Iowa and Texas, while Indiana, North Carolina, South Dakota, Nebraska, and other Midwestern and Southern states received “B” grades.
At the bottom of the list with an “F” grade were Rhode Island, Massachusetts, New York, California, and Hawaii, with the highest median price of $822,065. Montana earned a “D” and Alaska a “C-minus.”
