The Scale of the Shortage
Freddie Mac puts the shortfall at 3.8 million units as of 2021 and NAR at 5.5 million.[1] It is concentrated in the metros with the strongest job growth and the most restrictive zoning, which is the same list.
Average Annual Housing Starts by Decade
Source: U.S. Census Bureau, New Residential Construction[2]
The Lost Decade of Construction
The 2010s were the worst decade for housing construction since World War II: an average of just 980,000 housing starts per year - 45% below the 1970s peak of 1.77 million.[2] While the 2008 financial crisis triggered the initial drop, regulatory barriers prevented the recovery that previous construction cycles had experienced.
Why We Can't Build: The Regulatory Barrier
The United States is unique among developed nations in delegating virtually all land-use authority to local governments. Approximately 30,000 jurisdictions - cities, counties, towns, and special districts - each maintain their own zoning codes, permitting processes, and development standards.[4] There is no national building code, no federal permitting standard, and no mechanism to override local obstruction of housing development.
This system creates three interlocking barriers to housing construction:
1. Exclusionary Zoning
In most major U.S. metros, 75% or more of residential land is zoned exclusively for single-family homes, making duplexes, townhomes, and apartments illegal on the great majority of buildable land.[3][6] The constraint is not demand or capital. It is that the units cannot legally be built.
2. Permitting Delays
Even a fully compliant project waits. The national average permit time for a single-family home is 7.4 months, and in San Francisco and Los Angeles multifamily approvals can take two years or more.[4] Delay is itself a cost, carried in financing and passed into price.
3. Discretionary Review and Community Opposition
Many jurisdictions require public hearings and discretionary approval even for housing that already meets zoning. That hands opponents a veto at the end of the process, after the applicant has spent the money to get there.
How Long It Takes to Build: City-by-City Comparison
The time from project conception to building permit varies dramatically across cities. The difference is almost entirely driven by regulation, not geography or construction complexity:
Average Months from Application to Building Permit - U.S. Cities
Sources: Census Bureau[2], local government records, industry estimates
International Comparison
Sources: National government records, industry estimates. Japan data from Ministry of Land, Infrastructure, Transport and Tourism.[8]
The Cost of Regulation: 23.8% of Every New Home
NAHB estimates regulatory costs at 23.8% of the price of a new single-family home, roughly $93,870 on a median new home.[5]
| Regulatory Category | % of Home Price | Est. Cost (Median Home) |
|---|---|---|
| Development Phase (impact fees, utility hookups, stormwater, delays) | 10.5% | $41,330 |
| Construction Phase (building permits, OSHA, codes, tariffs) | 13.3% | $52,540 |
| Total Regulatory Burden | 23.8% | ~$93,870 |
Source: National Association of Home Builders[3]
The share is not uniform: above 40% of price in San Francisco, far lower in Houston.
The Japan Model: What Permissive Building Looks Like
Japan runs a national zoning system with 12 standard categories rather than 30,000 local codes, and permissive categories allow housing by right. Despite one of the world's largest urban populations, Tokyo housing costs stay moderate relative to income.[7]
| Country | Zoning System | Typical Permit Time | Outcome |
|---|---|---|---|
| Japan | National zoning code, ministerial approval | ~2 months | Tokyo housing costs are lower relative to income than most major U.S. cities |
| Germany | National building code, streamlined local approvals | ~3-4 months | Housing costs remain moderate in most cities outside Munich/Frankfurt |
| United States | Local zoning control, discretionary review | 3-27 months | Severe affordability crisis in most major metros |
Sources: Ministry of Land, Infrastructure, Transport and Tourism (Japan)[8], Up for Growth[4]
Why Japan Builds More
Japan builds approximately 800,000 housing units per year for a population of 125 million.[8] The United States builds roughly 1.4 million for a population of 335 million.[2] That is 6.4 units per 1,000 people against 4.2, so Japan builds at roughly 1.5 times the U.S. rate per capita. The difference is regulatory rather than economic: Japan makes building straightforward where the U.S. makes it slow.
The Post-War Precedent: America Has Built Fast Before
The regulatory barriers that constrain housing today are relatively recent. After World War II, the United States built housing at a pace that would be impossible under current regulations.
Levittown delivered 17,447 homes between 1947 and 1951, at peak completing 36 a day.[9] The 1970s averaged 1.77 million housing starts a year, the highest sustained rate in American history. Population has grown more than 50% since, and construction has not.
State-Level Reform: What's Working
Several states have begun to override local zoning barriers, with measurable results:
Oregon (2019)
Banned single-family-only zoning in cities with populations over 25,000 (HB 2001).[10] Cities must now allow duplexes on all residential lots and fourplexes on lots near transit. In Portland, middle housing production quadrupled, reaching 26% of all housing permits citywide.
California (2021-2023)
Enacted SB 9 (allowing duplexes on single-family lots) and SB 35 (streamlined approval for projects meeting affordable housing goals).[10] While implementation has been slow, SB 35 has enabled approval of over 18,000 units that would otherwise have faced discretionary review.
Minneapolis (2018)
Became the first major U.S. city to eliminate single-family-only zoning citywide (Minneapolis 2040 Plan).[10] In the first three years, permits for 2-4 unit housing increased approximately 45% over the prior period. Home prices grew more slowly than in comparable metros with restrictive zoning.
Houston, TX (No Zoning)
Houston has never adopted a traditional zoning code. The result: housing costs approximately 50% below the average of the most populous U.S. metros.[11] Houston consistently ranks as one of the most affordable major cities in America, despite rapid population growth.
Why Federal Action Is Needed
State reforms are encouraging but partial. Local governments face strong incentives to block development, and each one benefits from restricting its own supply while the national result is a shortage. That collective action problem is what federal conditions on funding are for.
Policy Response
The Affordability and Immigration Act proposes federal-local partnerships that use existing federal funding as leverage to increase housing production:
- •Bonus Funding: Jurisdictions that exceed housing production targets receive increased federal infrastructure and community development funds
- •Reduced Funding: Jurisdictions that systematically block housing development face reduced federal funds for transportation and infrastructure
- •Model Fast-Track Permitting: Federal templates for streamlined permitting processes that jurisdictions can adopt to reduce approval times to under 90 days
- •Infrastructure Support: Federal investment in water, sewer, and roads for new housing development areas
- •Public Land: Federal land made available for housing development where appropriate
- •Technical Assistance: Federal support for local governments implementing zoning reform
This approach respects local governance while creating powerful incentives to build. The federal government already conditions funding on local outcomes in education, transportation, and environmental policy. Housing should be no different.