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America’s housing opportunity: Beyond the supply gap

October 29, 2025
Rich Hill
Global Head of Real Estate Research & Strategy
Art Jones
Senior Director, Global Real Estate Research and Strategy
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Executive summary

Three themes define the U.S. housing market today:

  1. Rentership remains a cornerstone at approximately 35% of households,
  2. The rental market extends well beyond apartments, and
  3. The central challenge is not simply undersupply, but a mismatch between the types and locations of housing and where demand exists.

Rentership remains a cornerstone of housing

Since 1964, the U.S. homeownership rate according to the U.S. Census Bureau (as of 2Q 2025) has averaged 65.2%, peaking at 69.2% in 2004 and bottoming at 63% in 2016. Today, it sits near 65%, broadly in line with its long-term average. Looking ahead, we expect ownership and rentership to remain balanced: affordability barriers will continue to limit access to ownership, while demographic shifts (particularly among people aged 25–54 and 70+) should provide steady but modest support for demand. Over the long run, homeownership is therefore likely to remain anchored around 65%.

Rentership is broader than apartments

Apartments are only part of the rental story. According to National Multifamily Housing Council (NMHC), just 39% of renters live in buildings with five or more units, while a comparable share rent single-family homes. Another 17% occupy two-to-four-unit properties, and 4% live in manufactured housing. Regional and geographic differences are material: manufactured housing represents 13% of rentals in non-metropolitan areas, for example. Some demand is also understated in headline data. Independent living for seniors counts as rentership, but assisted living, nursing homes, and dormitories, which are significant sources of demand tied to aging and student populations, are excluded.

Yes, there is a housing shortage…but also mismatch

Headlines often cite a housing shortage of millions of units and while the underproduction is real, the framing is incomplete. First, the nationwide gap is almost entirely concentrated among extremely low-income households, but other income groups have adequate housing. The housing affordability challenges are especially acute in eight major metros, but many other markets remain affordable for the median earner. Second, the even greater issue is misalignment: our analysis of U.S. Census data for household formations (demand) and household completions (supply) from 2013 to 2023 at the state, CBSA and county level suggests that very few markets have an oversupply problem in aggregate, but rather many markets are challenged with undersupply. Since most new supply skews towards Class A units, it’s possible that some markets that appear balanced have an oversupply of conventional Class A house, but an under-supply of affordable housing.

Bottom line

The U.S. rental market is highly fragmented. Regional variations in housing types, the split between multifamily and single-family rentals, and the role of manufactured housing all shape supply. The core challenge is not simply the number of homes, but whether they are in the right places, of the right type, and at prices households can afford. There is not an optimal nationwide solution making market and housing type selection critical. Addressing these dynamics therefore requires a holistic approach that spans the full rental spectrum—critical for policymakers, investors, and housing providers alike.

Beyond headlines: Understanding housing affordability

It may surprise some people to learn that the cost to build a Class A apartment isn’t that different than Class B, C or even affordable (see The cost of affordable housing: Does it pencil out?). This is because the cost of land, labor, materials, and regulatory compliance are essentially the same whether the property will be considered Class A or B. That means a new building must command top-of-market rents to producing compelling returns. The Housing Affordability Toolkit produced by the NMHC provides a helpful analysis of the cost drivers of building apartments. Properties “filter down” the quality spectrum as they age without ongoing reinvestment in the property. As a result, the percentage of apartments at lower rent levels is steadily declining over time.

State–Share of Rental Units by Monthly Contract Rent: 2013, 2019, and 2023

Share of Rental Units by Monthly Contract Rent (Percent)

Chart showing that the percentage of apartments at lower rent levels is steadily declining over time
From left to right:
 
2013
 
2019
 
2023

 

Source: Joint Center for Housing Studies, U.S. Census Bureau, American Community Survey 1-Year Estimates, 2024.

The exception is essential housing and manufactured housing. Some developers target the essential housing space by building smaller, simpler properties with fewer amenities to keep rents lower. Furthermore, manufactured housing typically serves as essential housing in more rural areas. That’s exactly why only 4% of renters live in manufactured housing nationwide, but it rises to 13% of rentals in non-metropolitan areas.

While the prevailing narrative is that the U.S. faces a shortage of affordable housing as a result, the reality is that the problem is concentrated among extremely low-income households. The National Low Income Housing Coalition state in their report titled The Gap: A Shortage of Affordable Homes that “the nation’s 10.9 million extremely low-income renter households face a shortage of 7.1 million affordable and available rental homes, resulting in only 35 affordable and available homes for every 100 extremely low-income renter households”. By contrast, all other income groups have sufficient affordable rental housing available to meet their needs.

Middle-income renters: About 5 million households (81%–100% of AMI) can access the homes affordable to low-income renters plus 7 million higher-cost units, for a total of 41.2 million units.

Low-income renters: Roughly 9.5 million households (51%–80% of AMI) can access 15.6 million units available to extremely low- and very low-income renters, plus 18.6 million higher-cost rentals, totaling 34.2 million units.

Very low-income renters: Over 6.8 million households (50% of AMI or below) can access 7.1 million units affordable to extremely low-income renters plus 8.5 million additional units, totaling 15.6 million. Combined with extremely low-income households, 17.7 million renters compete for only 15.6 million units, creating a shortfall of roughly 2.1 million homes.

Rental units and renters in the U.S. matched by affordability and income categories, 2023 (in millions)

From top to bottom:
 
Extremely low-income
 
Very low-income
 
Low-income
 
Middle-income
 
Above median income
Charts showing the nation’s 10.9 million extremely low-income renter households face a shortage of 7.1 million affordable

Source: Source: National Low Income Housing Coalition, 2023 ACS PUMS
Note the numbers are rounded and therefore may not exactly add up to the final cumulative total of households and/or rental units.

Affordable housing challenges exist nationwide, impacting communities in every state, but they are especially acute in certain markets. According to Zillow, in eight major metros—San Francisco, San Jose, Los Angeles, Riverside, San Diego, Miami, New York, and Boston—renters now need six-figure incomes to comfortably afford rent. In six of these markets, the median household would spend over 30% of its income on a typical rental. San Jose and San Francisco are somewhat exceptions, where median households would spend 25% and 28% of income on rent, respectively. Despite significant rent increases over the past five years, many markets remain affordable for median earners. The most budget-friendly metros include Buffalo ($55K income required), Oklahoma City ($56K), and Louisville ($57K), where median renters would spend 23% or less of their income on rent, providing more flexibility for financial stability.

Conclusion

The U.S. housing market is shaped less by an overall shortage of units and more by a persistent mismatch between the types and locations of housing and the evolving needs of households. Rentership, which accounts for roughly 35% of households, is a central feature, but it extends far beyond the traditional Class A apartments that dominate new construction, encompassing single-family rental homes, manufactured housing, and even senior as well as student living options. Across U.S. housing markets, some cities cater effectively to middle-income households but offer limited options for lower-income renters, while others prioritize affordability at the lower end, leaving fewer opportunities for the middle tier. This makes an optimal nationwide solution elusive and suggests that understanding local market dynamics is critical. Targeted policies and investments that align new supply with actual demand, both in terms of housing type and location, are essential to building a more balanced, accessible, and resilient housing system for all Americans.

For our full analysis of the three themes defining the U.S. housing market today, please download the report.

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