Thursday, July 23, 2026 from Stone Covering Weekly

By Kermit Baker

For the past four decades, Harvard’s Joint Center for Housing Studies has published an annual report on the major issues facing residential markets. In recent years, these reports have covered many of the same themes — production levels have been extremely weak, the high cost of housing and rising mortgage rates have created an affordability problem and households at the lowest end of the income spectrum have been hit the hardest.

This year’s report, released in mid-June, documents how these concerns are still defining the housing situation nationally. However, the list of problems has expanded in some unexpected ways. Three issues that have recently emerged have begun to change the approaches to dealing with the national housing crisis.

The first development is that even with the long-standing concerns over the national housing shortage, demand for housing is beginning to weaken. One reason for this is that household formation rates among young adults have slowed due to a weakened job market, high levels of student loan debt and low consumer sentiment among this group. As a result, many young adults cannot afford to form new households and instead are doubling up or living with family.

The aging of the population also is slowing household growth. This is not only a result of an inevitable increase in mortality rates, but also that older households are increasingly moving out of their residences to live with family members or other people or moving to a managed care facility. Housing demand is further threatened by severely restricted immigration and increased deportations. Net international migration to the U.S. halved in 2025. The Census Bureau projects that it will plummet another 75 percent this year.

The second emerging theme is that with the slowing demand for housing, estimates of the national housing shortfall are declining. After more than a decade of underbuilding following the Great Recession, estimates of the number of additional housing units needed nationally ranged as high as five to six million. As of the first quarter of 2026, only about 400,000 additional units for sale and 200,000 for rent would be needed to match the vacancy rates of the 1990s, suggesting a more modest overall shortage.

The final emerging theme is the growing momentum for increased government involvement at all levels in easing housing problems. Due to the importance of building codes, zoning laws and land-use restrictions, dealing with housing issues has largely been left to local government. However, since private markets have not been able to produce enough affordable units, pressure is mounting on governments at all levels to intervene more aggressively. State initiatives are being implemented to provide incentives or mandates for local governments to reform zoning and building codes as well as deploy a range of financing tools to encourage more development, especially for affordable housing projects.

However, even these initiatives have not yet successfully resolved the problems facing housing. Recently the federal government has jumped into the fray. The 21st Century ROAD to Housing Act reflects recognition that these challenges are growing in magnitude and urgency, and that some of the problems can be addressed at the national level. This bill includes measures for speeding up federal environmental reviews for certain housing projects, removing restrictions on building manufactured homes and tying cities’ federal funding to their housing production. The last time that the federal government took significant action on housing was 40 years ago with the passage of the Low-Income Housing Tax Credit in 1986. That program became the fundamental mechanism that developers use to produce affordable housing and has financed roughly four million affordable rental units.

Kermit Baker is the chief economist at the American Institute of Architects. He can be reached by email at [email protected].