The U.S. housing market is chronically underbuilt, resulting in a decades-long shortage. Burdensome regulations take part of the blame, but they are not the only cause.

A new report from the Federal Reserve Bank of St. Louis indicates that regulations are just one piece of the puzzle. Labor shortages, land constraints, and rising building, borrowing and material costs are also to blame. These factors can delay approved residential projects or kill them altogether.

The report dives into how America’s housing shortage is decades in the making. Permitting activity reached its peak in the early 1970s at 10.6 building permits per 1,000 people. After a period of volatility in the 1980s and 1990s, permits began to climb, only to crash after the financial crisis of the late 2000s.

There’s been an uptick in permits and authorizations since the Great Recession, but the authors of the report, Manu Garcia and Carlos Garriga, called this an “incomplete recovery.” Single-family permits are at 2.9 per 1,000 people, short of the historic average of 4.1, according to the report. 

“Despite over a decade of recovery, total permits per capita in 2024 stand at 4.3 per 1,000 — still 35% below the 1960-2000 average of 6.6 permits per 1,000. The U.S. is building less housing per person than at almost any point in the postwar era,” the report explains. 

To exemplify the nation’s housing deficit, the report noted that the homeowner vacancy rate was just 0.95% in 2024, the lowest on record and down from a peak of 2.9% in 2008. This rate has since risen to 1.2% but is still well below its historic average. 

Non-regulatory barriers 

Estimates typically put the U.S. housing shortage at between 1.5 million and 4 million homes, although the Fed report offered no figure of its own. Instead, it focused on underlying causes. 

One of these causes is the plummeting household size, which has fallen from roughly 3.4 people in 1960 to just over 2.5 people in 2026. 

Some research indicates that the typical household size could fall even further. The National Association of Realtors’ 2026 Home Buyers and Sellers Generational Trends Report found that 53% of Gen Z buyers — the oldest of whom are approaching 30 years old — bought a home on their own. 

“As average household sizes shrink and the desire for independent living grows, a ‘static’ housing stock effectively becomes a shrinking one,” the Fed report cautioned.

It also pointed to the “leaky pipe” of supply, highlighting barriers to completing construction once a builder or developer obtains a permit. The data indicates a persistent lag as the number of permits issued exceeds the number of completions. 

Getting projects approved, entitled and permitted is just part of the battle. Many projects that make it to this stage can stall for years or even fail to move ahead altogether. 

This issue was particularly pronounced in the years following the COVID-19 pandemic. The number of building permits issued spiked between the second half of 2020 and the start of 2022. Builders and developers secured many permits during this period that have yet to be converted into more new housing units. 

Anyone who’s observed development project timelines and approvals knows that many of these projects died due to high costs. Borrowing costs, temporarily lowered during the pandemic, skyrocketed in 2022 and have since remained elevated. Inflation and supply chain disruptions, combined with a chronic labor shortage in the trades, also made building more expensive.

As housing became more costly to finance and construct, some developers and builders found that the rents or sales prices needed to support these projects weren’t viable. 

“Completions lagged as builders faced unprecedented supply chain disruptions and labor shortages,” the report noted. 

But the authors also noted that per-capita home completions reached 4.77 in 2024, while permits came in at 4.33 — marking the first time since 2010 that permits trailed completions on a per-capita basis.

Local regulations remain a hurdle

The authors additionally highlighted local regulatory barriers to construction, such as zoning restrictions and lengthy approval and permitting timelines. There’s been a wave of state and municipal reforms aimed at streamlining construction, including zoning overhauls and efforts to legalize more attainable housing options, such as single-room occupancy. 

For example, a recent bill signed into law by Idaho Gov. Brad Little restricted some local limits for starter-home subdivisions while granting local governments more power to implement missing-middle housing plans. 

Additionally, many large cities like Seattle, Austin, Honolulu and Los Angeles have adopted AI to streamline permitting and approval processes, often shortening review periods by days or weeks. 

The findings from the Federal Reserve Bank of St. Louis complement a recent White House report that outlined chronic underbuilding across the nation. That report mainly pointed to overregulation as the main cause of the country’s housing shortage. But it estimated that the real housing deficit was around 10 million single-family homes — much larger than most contemporary estimates.