Published
March 17, 2025
Housing has long been a cornerstone of the American dream and a vital component of the nation’s economy. Yet, the U.S. housing market is in crisis, driven by a fundamental imbalance between supply and demand. A severe shortage of over 4.5 million homes has created cascading economic and social challenges, from skyrocketing prices to reduced workforce mobility.
This deficit, rooted in a decade of underbuilding following the Great Recession and surging demand from millennials entering prime home-buying years, has driven up prices and worsened affordability. High mortgage rates and soaring rents have further exacerbated the crisis, which now impacts the broader economy by reducing consumer spending, increasing employee turnover, and hindering businesses' ability to attract and retain talent. Addressing this shortage is essential for stabilizing the market and supporting long-term economic resilience.
The following data explores the economic impact of the housing shortage and the factors driving the housing affordability crisis.
Housing’s Importance to the American Economy
The housing shortage is not merely an issue for homebuyers and renters—it’s a significant burden on the broader economy. This shortfall has cost states billions in economic output, personal income, and jobs.
The interactive map below shows the U.S. Chamber of Commerce's analysis of the financial impact of the housing deficit since 2008. The shading on the map represents GDP losses for each state, assuming that investment in new construction occurred outside the analyzed state. These losses are driven by reduced housing construction compared to pre-2008 levels—a trend observed in nearly every state.
The map also includes state housing market data, such as listing prices, price per square foot, total and new listings, and days on the market, as of January 2025.
The Economic Impact of the Housing Shortage
Select a state below to explore the state-specific impact of the housing shortage and the current housing market conditions.
What’s Driving the Housing Crisis?
The housing crisis stems from a fundamental issue: the construction of new homes has failed to keep pace with demand, particularly in high-growth areas.
Migration trends reflect the challenges in the housing market. The South has experienced significant positive migration, while the Northeast and California have seen notable negative migration. People are leaving regions like California and the Northeast, where intense housing shortages have driven up costs and limited affordability. While this migration alleviates some pressure on demand in these areas, it is not significant enough to resolve the broader housing crisis.
Business migration follows a similar pattern. In 2021, a record 6,000 companies relocated their headquarters, with most moving from the Northeast and West Coast to the South. The South gained over 700 new firms, while the Northeast lost nearly 400. These business moves bring employees, further increasing housing demand in high-growth regions.
Housing shortages in high-growth areas force workers to live farther from their jobs, leading to longer commutes and reduced productivity. When businesses can attract the right talent without housing shortages acting as a barrier, workforce mobility improves, helping to ease ongoing worker shortages and creating a more resilient labor market.
Why Aren’t We Building Enough Homes?
Regulatory Failures
The shortage of housing can be attributed to a range of regulatory and policy failures. These include burdensome permitting processes, outdated zoning regulations that dictate everything from lot sizes to parking requirements, complex legal frameworks, price controls, and restrictive financial regulations. By addressing and reforming these regulatory obstacles, government can create a more favorable environment for developers, enabling them to construct homes at a faster pace, and for a lower cost.
Increased Construction Costs
The ongoing recovery from the pandemic continues to challenge the supply chain, significantly impacting the availability of essential building materials required to meet the surging housing demand. This scarcity of resources has pushed the cost of constructing new homes to unprecedented levels. As a result, home builders are feeling the pinch and finding it harder to price projects competitively while also managing their increasing expenses and indirect costs.
The Producer Price Index (PPI) measures the average change in prices that domestic producers receive for their goods and services over time, reflecting intermediate-level inflation. Prices for lumber/wood and metals/metal products were rising steadily from 2000 up through the pandemic. But following the pandemic they rose sharply, marking a 25-year high in 2022. As of 2024, prices have moderated but remain significantly above where they were just a few years ago.
The rising costs and limited supply are slowing new home construction despite high demand – underscoring the need for robust and lasting solutions to strengthen supply chain resilience and incentivize building to support the housing sector's growth and stability.
Impact of Tariffs
Proposed tariffs on imported materials would further exacerbate these challenges by driving up costs. When tariffs are imposed, the prices of these essential materials rise, leading to increased construction expenses. Ultimately, these rising costs are passed on to American families which result in greater financial burden and worsening housing affordability.
The Affordability Crisis
In 2021, nearly one-third of U.S. households—over 42 million—were cost-burdened, meaning they spent more than 30% of their income on housing costs, according to the U.S. Census Bureau. This marks an increase of 4.9 million households since 2019, right before the COVID-19 pandemic. The substantial rise in rent and home prices, coupled with elevated mortgage rates, has dramatically outpaced income growth for most Americans, leaving millions unable to keep up.
As of January 2025, the average United States home value is $355,328, up 2.7% over the past year. These increases have far outpaced income growth, making homeownership unaffordable for millions of Americans. High mortgage rates have created a “lock-in effect,” where homeowners with low-interest mortgages are reluctant to sell, further limiting housing supply.
While steady growth in housing values since 2000 was driven by broader economic trends, the sharp increase since 2021 can be attributed to high inflation, rising construction costs, and constrained housing supply. These factors, combined with regulatory and zoning restrictions in many areas, continue to tighten the housing construction market.
Compounding the financial strain from increased home values, mortgage rates have stayed at twenty-year highs. This is especially challenging for first-time homebuyers. While 80% of millennials hold mortgage rates under 5%, only 52% of Gen Z borrowers experience similar rates.
The 30-year fixed mortgage rate surged after the Federal Reserve raised interest rates to combat inflation. By February 2025, the average rate had risen to 6.76%, a sharp increase from the roughly 3% average in 2021. While the Federal Reserve has signaled its commitment to significant interest rate cuts, mortgage rates are expected to decline but are unlikely to return to the historically low levels seen during or before the COVID-19 pandemic.
This increase from pandemic period low rates has made it less appealing for existing homeowners to move, particularly among baby boomers. Many lack financial incentives to sell, with over half owning their homes mortgage-free. Those with mortgages often benefit from historically low-interest rates, further discouraging new purchases. Additionally, a lack of downsizing options—such as accessory dwelling units and townhomes—due largely to restrictive zoning policies, limits their ability to move, especially within their own neighborhoods.
Rents have risen at a significantly faster pace, with nationwide increases climbing from an average of around 3% annually to 6.5% starting in 2021. By 2024, the market showed some signs of stabilization, with a 5% annual increase. In certain cities, rents have surged by more than 50% compared to pre-pandemic levels.
No segment of the rental market has escaped these ongoing price hikes. Based on the most recent projections from the U.S. Department of Housing and Urban Development (HUD), median rents nationwide are anticipated to rise by 4.8% in 2025 compared to 2024, highlighting the persistent strain on housing affordability.
Opportunities for Change
By taking a leading role in addressing the challenges in the housing market, the business community can address the issue more efficiently than government. Unlike government entities, which face bureaucratic delays and budget constraints, businesses can more quickly mobilize capital, adopt cutting-edge construction sustainable technologies, and respond to market demands with greater flexibility. By leveraging public-private partnerships, the private sector can complement government efforts, bringing in expertise and efficiency that can drive housing costs down.
However, for businesses to effectively solve this problem, state, local, and federal governments must improve permitting processes, fix outdated zoning regulations, improve legal environments, remove price controls, and right size financial regulations. By reforming these regulatory frameworks, government can create a more conducive environment for private developers to operate, enabling them to build more homes faster and at lower costs.
Next Steps
The U.S. Chamber is committed to working with stakeholders to solve the most pressing issues of our time. Across the housing sector, this includes industry leaders, community organizations, and policymakers at all levels to lower housing costs and increase the abundance of available housing across America.
For more information about our initiatives and how we are supporting the housing industry, please contact Makinizi Hoover at mhoover@uschamber.com.
About the authors
Makinizi Hoover
Makinizi Hoover is the Senior Manager of Strategic Advocacy at the U.S. Chamber of Commerce. She leads the housing portfolio and mobilizes resources to address high-priority issues, ensuring effective advocacy on key legislative and regulatory priorities.
Isabella Lucy
Isabella has created stunning visualizations tackling pressing issues like the worker shortage, the benefits of hiring veterans, the lifespan of small businesses, and the future of work.
