This post was updated Apr. 8, 2025.
The housing supply gap is one of the most pressing challenges in the real estate industry today. At SXSW 2025, I had the opportunity to moderate a panel discussion that brought together key experts to explore the findings of Realtor.com’s 2025 Housing Supply Gap Report. According to the report, the U.S. is short nearly 4 million homes, an issue that has driven up housing costs and made homeownership increasingly difficult for millions of Americans.
The conversation at the SXSW panel, “Unlocking Supply: Addressing the Missing ~4 Million Homes in America,” focused on government policies, zoning laws, affordability, and the role of construction and infrastructure in closing the gap.
The discussion featured insights from:
- Danielle Hale, chief economist at Realtor.com
- Kirk Watson, mayor of Austin
- Mary K. Cunningham, senior VP, research management and program development, The Urban Institute
You can watch the complete panel discussion below and access the full Housing Supply Gap Report here.
Most people think that the problem is as simple as “high interest rates,” and the solution is to simply lower them. Unfortunately, it’s not that simple or singular. In fact, with what I learned from these expert panelists, and based on my own research, I believe that there are several barriers and potential solutions to unlocking our inventory crisis.
Barriers to unlocking inventory crisis: The challenges
According to Realtor.com’s report, “In 2024, new-home construction outpaced household formations for the first time since 2016.” This means that new construction has been playing catchup to the growing number of households for almost a decade. But why has it been so difficult to meet the demand?
At SXSW, Mayor Watson emphasized that zoning laws and permitting processes can either help or hinder new housing development. “Zoning restrictions that favor single-family homes over more diverse, affordable housing types are a major barrier,” Cunningham said.
Beyond zoning, the conversation touched on rising material costs, labor shortages and the rising cost of land, all of which contribute to the massive challenge of building “deeply” affordable housing. These challenges slow down construction and make housing more costly, especially in cities like Austin, where demand continues to grow.
The panel also discussed that beyond zoning laws in real estate, there are additional regulatory barriers, such as long permitting processes and restrictive building codes, that drive up builder costs as well. Watson and Cunningham both agreed that state and local governments must streamline approval processes to facilitate faster housing development.
This is not to mention the need for proactive, as opposed to reactive, infrastructure changes. In Austin, the city has focused on improved public transportation, like the Light Rail, to make mobility around the city more streamlined and sustainable for the continued massive growth they are experiencing.
Additionally, federal funding cuts to HUD programs and FHA financing changes could impact new development projects and affordability initiatives. Hale pointed out that while policymakers acknowledge the problem, the path to solving the challenges has been mixed.
The lack of new construction homes over the past decade isn’t the only reason we have a supply problem. Existing homeowners are just not moving. Not only are they “trapped” by the low interest rate on their existing home and the financial weight of increased home prices, but there are additional considerations like the rising costs of property insurance and canceled policies.
According to the Joint Center for Housing Studies of Harvard University, “From the Great Recession to the present, homeowner’s insurance prices have increased 74 percent while home prices have increased more than 40 percent, even after adjusting for inflation.” While recent inflation is credited to climate-related events, insurance is a highly regulated industry, not at the federal level, but at the state level, creating a complex and likely inefficient system.
Finally, the Housing Supply Gap Report also comments on the decreased household formations, which also impacts the demand for housing. “An estimated 1.6 million expected Gen Z and millennial households did not form in 2024 due to various factors, including a lack of affordable housing.” As a young professional, the barriers to housing are significant. Not only are purchase prices increasing, but so are rental rates.
Low inventory is driving up home prices, making homeownership less attainable, which puts substantial pressure on the rental market. Moreover, starting salaries are lower than needed to purchase a home, according to research by Realtor.com, which is leading to more would-be first-time homebuyers and renters living at home with their parents, other family or roommates longer than past generations.
The median age for homeownership is getting older. According to recent data from NAR Realtor.com noted in their report, “the median age of first-time buyers reached 38 in 2024, the highest age in the data’s history.”
So, what are some solutions to the housing shortage?
Solutions to unlocking inventory crisis: The opportunities
1. We need proactive local and federal housing policies, regulations and incentives
The panel concluded that solving the supply gap will require a mix of government action, private sector investment and community engagement. Zoning reform, construction incentives and proactive infrastructure will all play a role in ensuring that housing supply meets demand.
Other specific zoning reforms could allow for more home types like duplexes, triplexes and ADUs (accessory dwelling units) in traditionally single-family zones. “For decades, we have prioritized single-family zoning, which limits the ability to build multifamily and more affordable housing options,” Cunningham explained. The housing supply gap could also be decreased by offering tax incentives and low-interest financing for affordable housing projects for builders and developers.
Several years ago, as residential real estate continued on a fast and furious path of significant growth and commercial real estate appeared to be more stagnant, innovative thinkers proposed adaptive reuse. Adaptive reuse is the concept of converting vacant or older office buildings and hotels into housing.
As land is limited, why not leverage existing buildings to add or convert them into usable spaces? Of course, costs and efficiencies must be considered, but if a building needs to be rehabilitated, why not invest in more affordable housing?
Finally, surplus public land should be used for deeply affordable housing development, not commercial real estate. Developing deeply affordable housing is not only an efficient use of public resources but could also contribute to the preservation of affordable housing by lowering the costs of acquiring the land and providing access to locations that would benefit the communities it serves.
2. We need streamlined housing production
With the growing use of artificial intelligence and automation to streamline technology, productivity, and even real estate transactions, an area of opportunity is to leverage AI to streamline government approvals to speed up housing production. Imagine a world where AI, alongside proactive policies, reduces the red tape and speeds up permitting at the local level.
The objective is to enhance the capacity of departments that are frequently impeded by intricate legal and political processes, not to eliminate human oversight.
In another interesting SXSW panel, Realtor.com’s Chief Economist Danielle Hale interviewed Jared Kuhn, VP of real estate and sales for ICON Homes, and John Ho, CEO of LandSea, on “Future-Proofing Housing for the Next Generation.” They discussed building homes leveraging 3D printing and modular housing to cut construction costs and build homes faster while also building resilient homes that can withstand climate challenges.
It was also important to consider and expand the implementation of smart housing designs as a part of prefabricated homes that are energy efficient and significantly reduce building expenses and costs. With 3D printing of homes, the possibilities and flexibility are endless. Imagine a community of creative and innovative house designs built quickly and by robots.
3. We need innovative mortgage solutions
Expanding mortgage and financing solutions is one of the most effective ways to address the housing supply gap and create more pathways to homeownership. As home prices rise and affordability remains a challenge, traditional 30-year fixed mortgages aren’t enough to meet the diverse financial needs of today’s buyers.
By introducing more flexible and creative financing options, we can help buyers enter the market while also encouraging sellers to list their homes, increasing available inventory.
One strategy is to improve financing options and affordability programs that help buyers overcome the down payment hurdle and reduce monthly payments. Assumable mortgages allow buyers to take over a seller’s low-interest loan and unlock more listings by providing an attractive option for buyers facing high rates. This is also a strong strategy for marketing a listing to attract a larger audience. What buyer wouldn’t be intrigued by a listing offering a 3 percent or lower interest rate in today’s market?
Similarly, portable mortgages, which let homeowners transfer their existing loan to a new home, could remove a significant barrier to moving and increase turnover in the market. Additionally, shared-equity programs — where buyers receive down payment assistance in exchange for a percentage of future home equity — offer a win-win solution that makes homeownership accessible without requiring massive upfront capital.
While these alternative borrowing options are rare and non-traditional, education around the benefits and increased opportunities could lead to greater adoption and consumer comfort.
Beyond these options, the industry must also embrace longer-term and alternative mortgage structures to increase affordability. Forty-year mortgages reduce monthly payments, making homeownership more feasible for middle-income buyers, while lease-to-own programs offer a path for renters to transition into homeownership over time.
These creative solutions expand demand and encourage sellers to list their homes, knowing that more buyers have the financial tools to compete. By modernizing mortgage products and offering a wider range of financing choices, we can help bridge the housing supply gap and create a more dynamic, accessible real estate market.
4. We need to prioritize affordable rental housing
With renters spending over 50 percent of their income on housing, many households are caught in a cycle where saving for homeownership is nearly impossible. The lack of affordable rental units contributes to housing instability, higher demand for lower-cost housing and fewer pathways to long-term financial security.
Expanding affordable rental housing supply, mainly through multifamily developments and build-to-rent communities, is essential to balancing the market and easing affordability pressures.
One key solution is to increase investment in affordable multifamily housing construction. By incentivizing developers to build more rental units, particularly in high-demand areas, we can expand supply, reduce rent inflation, and provide more stable housing options for working families.
Low-income housing tax credits (LIHTCs), zoning incentives and public-private partnerships can help make these projects financially viable. In parallel, responsible rent stabilization policies can prevent extreme rent spikes while allowing for reasonable property investment and maintenance, ensuring that rental housing remains affordable and sustainable.
Additionally, the rise of Build-to-Rent (BTR) communities, led by companies like Invitation Homes, has emerged as an innovative approach to increasing rental supply. These single-family rental developments provide the benefits of home-style living without the financial barriers of ownership, catering to families and professionals who may not be ready or able to buy a home.
By expanding institutional investment in BTR housing, cities can create more rental inventory, improve tenant stability and provide a bridge for renters working toward homeownership. A well-balanced housing market requires both strong homeownership opportunities and an affordable, stable rental sector — ensuring that people have housing options at every stage of their financial journey.
Unlocking the inventory crisis: The bottom line
Addressing the housing supply crisis requires a strategic and multifaceted approach that brings together policy, innovation and financing solutions. By accelerating the pace of construction while reducing costs, we can increase affordability and availability, allowing more families to achieve homeownership.
Expanding financing options, such as assumable mortgages, shared-equity programs and extended mortgage terms, will remove barriers to entry for buyers, fostering a healthier, more balanced housing market. Additionally, adopting AI and automation in real estate and construction offers a promising way to reduce costs, streamline permitting processes, and accelerate homebuilding efforts — all critical steps in bridging the supply gap.
As industry professionals, policymakers, and communities collaborate to implement these solutions, we can create a future where housing is more accessible, affordable and efficiently produced.
Real estate agents and industry leaders must continue to advocate for these changes, ensuring that both buyers and renters have more opportunities to secure stable housing and build long-term wealth. The future of housing depends on our ability to embrace innovation, expand access and prioritize sustainable growth.
Kendall Bonner is vice president of industry relations for eXp Realty. Connect with her on Instagram and LinkedIn.
