The Scale of the Shortage
Freddie Mac estimates the United States is short 3.8 million housing units as of 2021, a gap that has likely grown since.[1] The National Association of Realtors puts the figure higher, at 5.5 million.[5] Regardless of the exact number, the consensus among housing economists is clear: the country is not building enough homes to meet demand.
The shortage is not evenly distributed. It is concentrated in the metropolitan areas with the strongest job growth and highest demand - precisely the places where zoning is most restrictive and permitting most cumbersome.[4]
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. metropolitan areas, 75% or more of residential land is zoned exclusively for single-family homes.[4] This makes it illegal to build duplexes, townhomes, or apartments on the vast majority of residential land - even when market demand clearly exists. Minimum lot sizes, setback requirements, and height restrictions further reduce the number of homes that can be built per acre. Research by the Wharton School found that the “regulatory tax” on home prices — the gap between prices and construction costs attributable to regulation — ranges from near zero in lightly regulated cities to over 50% in the most constrained markets like San Francisco.[6]
2. Permitting Delays
Even when a project is allowed under zoning, obtaining a building permit can take months or years. The national average for a single-family home is 7.4 months.[2] In cities like San Francisco and New York, the process can exceed two years. Each month of delay adds carrying costs - land payments, interest, insurance, property taxes - that are passed directly to homebuyers. A 12-month permitting delay on a $400,000 home can add $30,000-$50,000 in costs before a single nail is driven.[3]
3. Discretionary Review and Community Opposition
Many jurisdictions require public hearings and discretionary approval for new housing - even housing that meets all existing zoning requirements. This gives opponents (often called “NIMBYs”) a veto power over development. A single vocal neighborhood group can delay or kill projects that would house hundreds of families. Research published by the National Bureau of Economic Research has documented a strong negative relationship between regulatory intensity and housing construction across U.S. metros.[7]
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
The National Association of Home Builders estimates that regulatory costs account for 23.8% of the price of a new single-family home - approximately $93,870 on a median-priced new home of $397,300.[3] This includes development-phase costs (impact fees, utility hookups, stormwater regulations, and delays at 10.5%) and construction-phase costs (building permits, codes, OSHA compliance, and tariffs at 13.3%).
| 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]
These costs are not uniform. In highly regulated markets like San Francisco, regulation can account for 40% or more of a home's price.[6] In lightly regulated markets like Houston, the figure may be under 15%.[3] This regulatory disparity is a primary reason why housing costs vary so dramatically across American cities.
The Japan Model: What Permissive Building Looks Like
Japan offers a compelling counterexample to the American approach. Unlike the U.S., where 30,000 local jurisdictions each set their own rules, Japan has a national zoning system with 12 standardized categories.[8] Building permits are ministerial (granted automatically if the project meets code requirements) rather than discretionary. There are no public hearings where neighbors can block development.
The results are striking. Despite having one of the world's largest urban populations, Tokyo's housing costs are moderate relative to income. A new apartment in central Tokyo costs approximately 10-13x median income - high, but far below San Francisco (12-15x), New York (15-18x), or London (15-20x).[8] More importantly, rents in Tokyo have remained roughly flat in real terms over the past two decades, even as the city's population has grown.[8]
| 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] Adjusted for population, Japan builds at nearly twice the rate of the United States. The key difference is not labor costs or materials - it is that Japan makes building legal and easy, while the U.S. makes it difficult and 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, New York - the iconic postwar suburb - delivered 17,447 homes in four years (1947-1951).[9] At peak production, the builders completed 36 homes per day using assembly-line techniques and standardized designs. Under today's permitting requirements in New York, the environmental review alone for a project of that scale would likely take longer than the entire original construction.
The 1970s saw an average of 1.77 million housing starts per year - the highest sustained construction rate in American history.[2] Since then, despite population growth of over 50% and dramatic increases in housing demand, annual construction has never consistently returned to that level.
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-level reforms are encouraging but insufficient. The housing shortage is a national problem that requires a national response. Local governments have strong incentives to block development - existing homeowners benefit from restricted supply (higher property values) while the costs (unaffordable housing) are borne by people who don't yet live in the jurisdiction and therefore can't vote.[7]
This creates a collective action problem: every city benefits from restricting its own housing supply, but the national result is a crisis. Only the federal government can break this dynamic.
Policy Response
The Affordability and Immigration Act of 2026 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.