“It’s primarily underbuilding that’s driving the housing shortage,” says Danielle Hale, chief economist of Realtor.com. “Builders haven’t kept pace with the number of people that need housing.”

How did we get to this crisis point? Well, the population has more than doubled since 1950. More Americans are living longer, and they all need homes. But builders have struggled to ramp construction back up since the Great Recession.

And higher mortgage interest rates, hovering around 7%, are leading many would-be sellers to stay put instead of downsizing into smaller homes and freeing up the larger ones for families. Moreover, in recent years, investors have competed directly against first-time buyers for affordably priced single-family homes.

“The housing shortage is a problem that developed over the housing crisis a decade ago, and it’s probably going to take a decade to get out of it,” says Mark Zandi, chief economist at Moody’s Analytics.

Builders aren’t putting up homes fast enough

So why aren’t more homes being built?

Builders have struggled to ramp up as about half of all construction companies went out of business during the Great Recession as homebuilding ground to a halt, according to the National Association of Home Builders. Many skilled laborers found jobs in other industries.

There was a roughly 80% drop in new construction from the peak, in the third quarter of 2005, to the trough, in the first quarter of 2009.

“If the population is going to grow and the pace of homebuilding is insufficient for that growth, then there’s going to be a housing shortage,” says Robert Dietz, chief economist of the NAHB. “You’d have to be building more than 1.1 million homes a year to meaningfully reduce the deficit.”

Today, says Dietz, the industry is suffering from a lack of construction labor, a lack of available lots, a lack of lumber and building materials, a lack of lending to builders and developers, and local laws and zoning requirements adding to the costs builders incur.

About a quarter of the final price of a new home is regulatory costs, says Dietz. Plus, higher interest rates means it costs builders more to borrow money for land development and construction.

In this post-COVID-19 world, the cost to put up a new home is 30% to 40% more than it was in 2018 and 2019, says Dietz.

“The cost of buildings is very high, so it makes it difficult to build homes at the low price point,” says Zandi.

In addition, the nation loses between 100,000 to 250,000 homes every year, according to NAHB. They’re torn down, destroyed by natural disasters or fires, or just deemed no longer habitable.

The bright spot in the housing market is the nearly 1 million apartments under construction, even though only a few hundred thousand are needed, according to NAHB.

While many of the newer units will be priced higher, landlords are likely to compete with one another for tenants. This could bring down rents in the markets with the largest oversupply of apartments.

“There is a record number of rental units in the pipeline,” says Zandi. “It all got disrupted during the pandemic. Builders couldn’t get appliances or building materials. A lot of the bottlenecks [since] got ironed out.”

More people need more homes

It would be easy to put all of the blame on the builders for the predicament the housing market is in. However, there are other forces at play.

Americans are living longer than they did decades earlier. So they’re occupying more homes.

“We’ve got two historically large generations, the baby boomers at the older end and the millennials on the younger end,” says Jenny Schuetz, a senior fellow at Brookings Metro, a think tank. “And the silent generation is living longer—staying healthier and living independently longer.”

There are more people living alone today than there were in previous years, especially seniors. Many folks who are 65 and older own their homes outright, so they don’t need to double or triple up with roommates. And as people have been having fewer children, they have less family available to take them in.

“We’ve gone from a world 40 years ago where most households were married couples with kids to a lot of empty nesters,” says Schuetz. “Single-person households are the fastest-growing segment of households and have been for a number of years now.”

On the other end of the spectrum are more young adults living with their parents longer. Younger generations often aren’t getting married as early as the baby boomers did. Many are also struggling with high rental and for-sale home prices. So they’re living in multigenerational homes or with roommates instead of moving out on their own or with their romantic partners.

“If people aren’t getting married at the same rates as prior generations, they still want to have some community,” says Chris Porter, chief demographer at John Burns Research and Consulting.

However, there aren’t enough young people shacking up with their families or roommates to offset the high demand for housing.

Square footage might not match family size

Even as builders put up more homes, they need to be the right homes for today’s buyers.

Many older Americans remain in their large houses, even well after their children have flown the coop. Some would prefer to downsize, but can’t find age-appropriate, smaller homes near their friends and family.

And even when the larger homes of empty nesters go up for sale, they’re often priced out of the ranges of growing families.

“We’re seeing more and more of a mismatch between the size of the household and the size of the house,” says Schuetz. “Younger households, including married couples and couples with kids, are living in smaller spaces than they’d like because that’s what’s available and that’s what they can afford.”

Another potential stumbling block is these larger, typically older homes might not be where younger folks want to live.

“It’s not clear that the places where there are a lot older homes are the places [younger households] would want to move into,” says Schuetz.

Higher mortgage rates are worsening the housing crisis

Higher mortgage rates, which the Federal Reserve hoped would cool the housing market, has actually wound up worsening America’s real estate crisis.

The problem is most homeowners with mortgages either purchased or refinanced into lower rates during the pandemic. If they put their homes on the market to move into new homes, they risk taking on higher rates near 7%—resulting in substantially larger monthly mortgage payments. So many are choosing to stay put for longer, including some homeowners who would have been likely to downsize.

In addition, investor sales of single-family homes spiked during the pandemic. They have been purchasing about a quarter of single-family homes on the market since mid-2021, according to CoreLogic data. Investor sales have remained strong despite higher mortgage rates as many of these buyers, ranging from mom and pop flippers to large corporations looking for homes they can rent out, pay in cash.

“We will be in a pretty low [housing] inventory environment for years,” says Lisa Sturtevant, chief economist of Bright MLS, the multiple listing service for the mid-Atlantic region. She expects the shortage to ease—at least a little as mortgage rates come down and more people move into homes that fit their needs. “But I still believe it’s going to be very, very tight.”

In the mid-Atlantic region, almost a quarter of all home sales were investment, rental, or vacation homes, she says.

As more communities crack down on Airbnb and other short-term rental properties, she anticipates more of these homes will go up for sale. About 12% of listings were for homes where an owner had passed away.

Vacation homes typically make up a small percentage of the housing stock.