I typically focus my columns on topics where I have extensive experience, but today I am straying outside my lane and venturing into the intersection of long-term demographic trends and land use challenges that will shape our industry's future. While I am neither a demographer nor economist, the question of future housing supply and demand affects us all.

Conflicting Views on Housing Supply

Recent years have produced wildly divergent estimates of our current housing deficit, ranging from 1.5 million to 5 million units. Meanwhile, respected research from Zelman's "Cradle to Grave" and Harvard's Joint Center for Housing Studies suggests that future demand may be significantly lower than commonly assumed. Are we grossly undersupplied or headed toward oversupply?

Let us examine the components that shape this debate.

Current Supply Deficit Assessment

Brookings Institution recently estimated unmet housing demand at 4.9 million homes. Common sense supports this view - persistently low single-family home vacancy rates and dramatic price increases indicate we have not built enough to meet demand.

However, from a purely economic perspective, price equilibrates supply and demand. At current prices, the market is technically "balanced." This highlights a crucial distinction between theoretical demand calculations based on demographics and affordability problems.

The Affordability Challenge

Consider this simplified example: In a market where three new houses sell for $250k, $500k, and $750k and the median household income (MHI) is $100k, the median house price (MHP) to MHI ratio is 5:1. If rising costs eliminate the $250k home, the MHP jumps to $625k, and the MHP-to-MHI ratio becomes 6.25:1.

This does not necessarily indicate reduced demand for the remaining homes — just that the entry-level segment is no longer being served. This pattern mirrors California's experience, where MHP-to-MHI ratios have reached previously unimaginable levels. Yet homes still sell because total production (80k units annually) is only one-third of the theoretical need.

When supply falls well below theoretical demand, comparing the "supply" of incomes to the "supply" of homes becomes essential. If prices rise while volume falls, that is an affordability crisis, not necessarily a housing industry problem.

While in select markets more price softening this year would not surprise me, especially given most people thought rates would be coming down at this point and the slow start to the sales year, I doubt we will see price corrections sufficient to “fix” affordability.

Single-Family Vs. Multi-Family Disparities

We must differentiate between total housing deficits and single-family home supply specifically. In many regions, multi-family housing has dramatically increased as a percentage of total permits:

• In Denver since 2013, we are approximately 38,000 units short of a balanced market overall, but 56,000 single-family homes short. Multi-family housing is slightly over-supplied and has represented over 50% of permits during this period.
• Atlanta's single-family permit total during the recent pandemic boom (22,000) barely exceeded its production during the severe 1990 recession (20,000), despite the metropolitan area's population and job base doubling.

Consumer surveys consistently show most buyers still prefer single-family homes. While temporary rental market softness due to apartment overbuilding may slightly impact single-family housing, apartments are not substitutes for many households.

Regional Variation in Housing Needs

National estimates obscure critical regional differences. Shrinking or stagnant markets offset growing ones, but housing cannot be relocated from areas of oversupply to areas of undersupply.

The South and West have absorbed almost all growth when divided into four regions. However, water issues increasingly threaten the West's growth trajectory. While technically solvable through different water usage priorities, political realities make this challenging. Will future growth concentrate even more heavily in the South?

Meanwhile, southern markets that have absorbed substantial growth are experiencing the same challenges that created backlash elsewhere: crowded infrastructure, strained schools, and maxed-out utilities. Will they be immune to the anti-growth sentiment that has constrained housing in other regions?

Future Demographic Projections

Harvard's Joint Center for Housing Studies baseline estimate projects just 8.6 million net new households from 2025 to 2035, a modest 860,000 annually. Even accounting for demolitions and second homes, this falls below current production levels.

Looking Ahead: An Educated Guess

Considering these cross-currents, here is my assessment:

• Cost structures will continue to rise, not fall
• Population growth will likely match Harvard's conservative projections as births decline and immigration remains politically contentious
• National housing numbers will decrease over time, though the dollar value of the industry may remain stable
• Geographic location will matter more than ever, with net domestic migration becoming the key indicator of housing market health
• Multi-family housing will continue filling the void left by insufficient single-family construction
• Emerging metropolitan areas may have shorter runways for expansion - perhaps 10-15 years rather than 20-30 years - as growth challenges trigger anti-development sentiment more quickly

Conclusion

After 40 years of watching single-family home approvals become increasingly difficult, I struggle to envision a scenario where we build too much housing. Perhaps my blind spot? However, growing markets will likely remain supply-constrained, at least for single-family housing, with any demand reduction offset by even more significant supply limitations, creating persistent upward price pressure. But the future remains uncertain enough that we all must make our own informed bets on where the market is heading.