In this piece, we will take a look at the 20 cities with the biggest housing shortage. For more cities, head on over to 5 Cities With the Biggest Housing Shortage.
The housing industry is one of the most closely watched sectors, particularly these days. It is the few sectors that are often tied to either economic turmoil or economic prosperity in America. In fact, the imbalance in the housing sector led to one of the most devastating economic crises in recent American history, namely the Great Recession of 2008. It was an imbalance in the market, that led to an excessive amount of mortgages that buyers could not keep up with during a high rate environment coupled with inconsiderate financial instruments created by banks and the irresponsible behavior of rating agencies that led to defaulted mortgages spiraling into banks going out of business, the stock market crashing, and the Federal Reserve being forced to jump in to absorb bad debt and expanding its balance sheet to an extent that it is still struggling to control today.
The effects of the housing market crash are in fact being felt in the market even today in terms of shortage. In fact, estimates from Harvard University show that even ten years after the housing crisis of 2008, buyers were warier of getting loans to finance their purchases, mortgage providers weren’t as eager to have a portfolio of countless products, and real estate agents knew better than to push the most expensive home on a prospective buyer. Americans, it seems, had learned some hard lessons that they could have done with at the turn of the 21st century.
Yet, these lessons would soon be faced with a new world reality. While the 2019 coronavirus pandemic did not see many homeowners default on their mortgage payments due to low interest rates and generous stimulus spending by the U.S. government, the aftermath of the virus’s impact would leave everyone unprepared. Data from the Federal Reserve Bank of Dallas shows that after the coronavirus recession, housing prices jumped by a whopping 19.3% to set a new record. This was due to most buyers being forward looking and anticipating an uptick in the prices – leading them to jump head first into the market to preempt any price jump. This translated into a self fulfilling prophecy, leading to a price rise that left many stunned.
Another consequence of the pandemic was a tightness in the housing market, and our rudimentary knowledge of supply and demand would indicate that a shortage would naturally lead to higher prices for the units that were available. Why did the market become tight? Well, lockdowns, social distancing, and subdued economic activity led to fewer houses being built – right at the time when people were looking to shift to suburban areas to enjoy the benefits of remote working. Data from the Fed shows that months of housing supply fell to a two decade low in 2021 while prices jumped to an all time high during the same time period. Building on this, data from We Are Apartments takes a current look at the U.S. housing market. It shows that right now, there are 38.9 million apartment residents in America while there are 22 million apartment homes. Additionally, 44% of U.S. apartments have been built before 1980, indicating that nearly half of them are due for maintenance or substitutes. Finally, the data also shows that more than a quarter of a million apartments, or 266,000, are needed each year to meet demand. The industry as a whole contributes $150 billion to the U.S. economy annually and creates 752,000 jobs.
Looking at the current supply of houses, the data paints a worrying picture. It shows that while housing supply in the U.S., in terms of months of inventory jumped from October 2020 when it sat at 3.3 months to 10.1 months in June 2022, since then it has been on a downward trend. 2023 opened with 8.1 months in January but with the first half of the year nearly over, it currently sits at 7.6 months as of April 2023. Similarly, active listings of houses for sale which stood at 1.2 million in August 2019 dropped to 346,544 in February 2022. And while it recovered to 750,279 in November 2022, it has plateaued to 564,598 in April 2023.
Finally, it’s also important to take stock of the current state of the market. On this front, management of the homebuilding company PulteGroup, Inc. (NYSE:PHM) shed some light on the matter during the firm’s Q1 2023 earnings report where they outlined:
Case in point, we ended the first quarter with 1,500 fewer specs in production than we started the quarter. This gives us flexibility to maintain or increase production volumes, which in today’s market is an important lever when working with trades and suppliers. As it relates to overall housing demand, home sales are benefiting from recent declines in mortgage rates, but I also think just having a general sense of stability in rates is important to consumer confidence. Given improvements in demand conditions in the broader interest rate environment as well as a generally limited inventory of existing homes, we are starting to see the pressure on selling prices ease in many of our markets. In fact, and well over half of our markets, we have found opportunities to pull back on incentives and/or move prices higher in many of our communities.
While the price changes are modest, it demonstrates the point that people desire home ownership and are willing to buy when they see value. Earlier this month, there was an article in the Wall Street Journal that looked at the housing shortage in this country. The article raised the point that depending upon which expert you ask, the housing shortage ranges from 2 million to 7 million houses. While there are certainly debates about the number, I think there is broad agreement that we have a housing shortage. I believe this is one of the reasons homebuyers are quick to respond when affordability pressures can be eased. Before turning the call over to Bob, let me take a minute to address impacts on credit availability given recent disruptions in the banking industry, particularly among the regional banks.
With these details in mind, let’s take a look at the U.S. cities with the biggest housing shortage.
Photo by Nick Karvounis on Unsplash
Our Methodology
To compile our list of the U.S. cities with the highest housing shortages, we used data from Up For Growth’s 2022 Housing Underproduction in the U.S. report to pick out cities with the most shortage in the market. This list has more than three hundred U.S. metropolitan areas, and the top twenty cities with the highest housing shortages are listed below.
20 Cities With the Biggest Housing Shortage
20. Salt Lake City, Utah
Latest Rank By Housing Underproduction Share of Units: 20
Salt Lake City is the largest city in the state of Utah. However, it is one of the smaller cities on our list with a population of just over two hundred thousand people.
19. Modesto, California
Latest Rank By Housing Underproduction Share of Units: 19
Modesto is another small city with a population of 218,464. It was set up in 1870 and has a vibrant agriculture industry that is dominated by winemaking.
18. East Stroudsburg, Pennsylvania
Latest Rank By Housing Underproduction Share of Units: 18
East Stroudsburg is a Pennsylvanian city with less than ten thousand residents. It is one of the oldest cities on our list, set up in the early eighteenth century.
17. Napa, California
Latest Rank By Housing Underproduction Share of Units: 17
Napa is a city in Northern California with a rough population of eighty thousand. It is a tourism hub in California and like Modesto, a hub for wine making.
16. San Jose-Sunnyvale-Santa Clara, California
Latest Rank By Housing Underproduction Share of Units: 16
San Jose-Sunnyvale-Santa Clara is a metropolitan area defined by the Census Bureau. It has close to two million residents, and its primary city San Jose is a technology hub in the U.S.
15. Greeley, Colorado
Latest Rank By Housing Underproduction Share of Units: 16
Greeley houses a little over a hundred thousand people. Set up in 1869, it is primarily known for its universities and community colleges.
14. Washington-Arlington-Alexandria, DC-VA-MD-WV
Latest Rank By Housing Underproduction Share of Units: 14
Washington-Arlington-Alexandria, also known as the Washington metropolitan area, with a population of 6.3 million. Its principal cities and counties are Washington, D.C., Arlington, and Frederick among others.
13. Winter Haven, Florida
Latest Rank By Housing Underproduction Share of Units: 13
Winter Haven is a Floridan city with almost fifty thousand residents. It is part of the Lakeland-Winter Haven metropolitan area, with Lakeland, Florida as its principal city.
12. San Antonio-New Braunfels, Texas
Latest Rank By Housing Underproduction Share of Units: 12
San Antonio-New Braunfels is one of the largest metropolitan areas in Texas and is also known as Greater San Antonio.
11. McAllen-Edinburg-Mission, Texas
Latest Rank By Housing Underproduction Share of Units: 11
McAllen-Edinburg-Mission is another large metropolitan area in Texas, but one that is smaller than Greater San Antonio.
10. Miami-Fort Lauderdale-Pompano Beach, Florida
Latest Rank By Housing Underproduction Share of Units: 10
Miami-Fort Lauderdale-Pompano Beach is a Floridan metropolitan area with more than six million residents.
9. Bend, Oregon
Latest Rank By Housing Underproduction Share of Units: 9
Bend is a city in Oregon with 99,178 residents.
8. Los Angeles-Long Beach-Anaheim, California
Latest Rank By Housing Underproduction Share of Units: 8
Los Angeles-Long Beach-Anaheim is one of the largest metropolitan areas in America with a population of 18.5 million.
7. Brownsville-Harlingen, Texas
Latest Rank By Housing Underproduction Share of Units: 7
Brownsville-Harlingen is one of the smaller metropolitan areas on our list, housing less than half a million people.
6. Merced, California
Latest Rank By Housing Underproduction Share of Units: 6
Merced has a population of 86,333 and was incorporated in 1889.
Click to continue reading and see the 5 Cities With the Biggest Housing Shortage.
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Disclosure: None. 20 Cities With the Biggest Housing Shortage is posted on Insider Monkey.