Breaking Ground: Is 2025's National Construction Boom Here?

In this exclusive article on The Breakdown, we discuss the status of the national construction boom predicted for 2025 at the year’s half-way point. We’ll look at some key updates for the U.S. housing inventory, explore potential effects on the market, and discuss considerations for investors through the rest of 2025. 

Homes in Short Supply 

If you’ve been paying attention to the news lately, you’ll know that the U.S. has been facing a major housing shortage. Over the past few years, the housing inventory in many U.S. cities has become increasingly strained. An NPR report from April of last year reported that the U.S. was short between 4 and 7 million homes.

Zillow confirms this deficit, with a recent press release from the real estate marketplace giant estimating that the current shortage was around 4.3 million homes between 2021 and 2022. This housing deficit, according to the press release, is the root of the U.S.’s current housing affordability crisis, exacerbated by high mortgage rates and the aging of Millennials, the largest generation of would-be homeowners in U.S. history. For this generation (and everyone else), there simply aren’t enough homes for all who want them, and the homes that are available are priced out of range.

The housing shortage is also affecting renters. Nearly half of renter households in the U.S. are cost burdened, and rent is almost always the culprit. Most of these households aren’t counting on receiving government housing assistance anytime soon. While programs like the Housing Choice Voucher Program (“Section 8”) do offer subsidized rent to the lowest-income U.S. families, the waitlists to receive a voucher in many cities are swamped, and many of those waitlists have been closed for months or even years. The Zillow release estimates there were about 8.09 million “missing households” in 2022 – individuals and families who would otherwise be counted as separate households but are instead living with non-relatives due to the inability to afford their own home.

There are several reasons this tight strain has persisted. For one, limited supply means high- and low- income households are both bidding for the same homes, which is a huge barrier for lower-income families. It's not just a shortage of homes, but more specifically, a shortage of affordable homes: apartments, townhouses, duplexes, and low-rise apartment buildings.

In fact, this kind of housing is known as the “missing middle” – a range of multi-unit housing types somewhere between single-family homes and high-rise apartments. These units are often overlooked and underproduced, but they are crucial for providing affordable, diverse, and walkable living options to those with lower or middle-class incomes.

Perhaps the most in demand right now are entry-level, single-family detached homes. Longtime renters across the U.S. have been waiting years for an affordable starter home, and they’re getting restless. Based on Zillow’s data, cities with the most severe housing shortages in past few years include the following:

City	# of homes short
New York City	389,924
Los Angeles	336,924
Chicago	97,379
Dallas	48,150

So, with inventory lacking across the country and the affordability crisis becoming increasingly urgent, what does the future hold for the U.S. housing market? What are the factors that could free any inventory in the coming year?

For those eager to buy, a ray of hope for aspiring homeowners might be on the way—in the form of a new construction wave.

Gearing Up for a Building Boom 

Construction boomed during the COVID-19 pandemic, with 1.4 million homes built in 2022, the highest since the Great Recession. Another 1.45 million were built in 2023. This inspired hope for many that new homes would flood the market, reducing prices, increasing affordability, and easing market strain.

However, this boom wasn’t nearly large enough, Zillow says. According to their data, the U.S. gained nearly two million U.S. families in 2022 alone. This means the country did not build nearly enough homes to compensate for all of those who need them. Those families have been waiting patiently—and their patience may be paying off.  Another potential construction boom was predicted for 2025.

New construction was already forecasted to pick up in 2024, but last year’s federal funds rate cut was predicted to kickstart construction even further. As more developers and investors considered taking out loans to start new projects to be a more financially feasible move, a potential construction boom was expected to follow. At least 500,000 apartment units – more than half a million – were expected to hit the market by the end of 2024. A RentCafe study completed in August predicted that 2+ million more should follow by 2028, projected to generate up to $1.53 trillion.

Most of this growth is monopolized by big builders. Multifamily growth may slow in the future if these builders aren’t as eager to invest, but at the moment, 2025 is turning out to be a blockbuster year for apartment construction. But of course, not all the U.S. will see immediate effects of this mass new construction.

Sunbelt Surge 

For the most part, the planned new construction is concentrated in the Sunbelt—where demand has been centered for the past decade.

A study looking at single-family homes between 2010 and 2019 found that of the 6.8 million SFH starts in total, over half (54%) were in the South and another quarter (23%) were in the West. By contrast, the Midwest only accounted for 15% of SFHs and the Northeast only 8%.

The exception is New York City. According to a 2024 report from the National Association of Realtors (NAR), New York City currently has the fastest apartment inventory growth, with 32,935 new apartments built in 2024. However, Dallas essentially ties it with about 33,000 new apartments . These two cities are closely followed by Austin, Phoenix, Atlanta, and Houston—all Sunbelt cities where new apartment construction is expected to slow rent growth and provide relief to renters in the remainder of the year.

The South/West trend can be explained, in part, by increased demand for homes in sunny states during the pandemic years. When work for many moved online, newly fully remote employees could leave other states in search of more comfortable weather and lifestyles. Thus, we saw an increased demand for homes in Florida, Texas, Arizona, etc.

So while the South and West may see some relief as new inventory arrives, this may not be the case for other parts of the U.S. Construction Coverage reports that the states with the lowest supply of housing in 2024 were concentrated in the Midwest and Northeast. Rhode Island, for instance, only had 1.8 months of housing supply, while Kansas only had 1.5. Washington state’s inventory was also low, at only 1.9 months. Although demand for homes isn’t nearly as high in these states as it was in the South and West, certain Midwest markets are heating up due to their affordability—and if more homeowners flock to these cities to buy, new construction may not be able to compensate for increasingly strained inventories.

Currently, the U.S. states with the largest recent increases in housing inventory are Florida and Maine. Others include Texas, Colorado, South Dakota, Louisiana, Vermont, and Alabama.

June Checkpoint: How is the 2025 Housing Inventory Shaping Up Amidst Tariff Uncertainty? 

Now that we’re halfway through the year, how is the predicted new construction in the U.S. looking?

While it’s still early for definitive numbers, predictions of growth do seem to be panning out in some cases. According to the U.S. Census Bureau’s Report on Monthly New Residential Construction for May 2025 (released in mid-June):

• 1,393,000 new building permits were granted 
• 1,256,000 new homes were started 
• 1,526,000 homes were completed 

Further, it seems like new affordable homes may be on the rise—at least in some areas. In 26 out of 100 of the largest U.S. metro areas, both new-construction prices and square footage are down since last year too. In these 26 cities (including Albuquerque, Atlanta, Austin, Fort Myers, Chattanooga, Chicago, Colorado Springs, among others), moderately-sized, affordable homes are being built—the smaller, lower-cost inventory many have been waiting for. The median list price of a home is down 0.3% since last year overall as well.

The bottom line? New homes are being built, they’re becoming more affordable, and people who are buying them are paying lower mortgage rates (by about half a percentage point, to be exact).

It’s not all good news, though. April was a slower month for home sales and construction than expected, primarily due to low home builder sentiment and complex economic outlooks. We’re of course talking about tariffs, which have significantly complicated the picture. Many SFHs rely on Canadian softwood lumber, on which there is currently a 14.5% duty. In fact, NPR reports that the average impact of the tariffs so far adds to nearly $11,000 per SFH.

These tariffs are causing a lot of uncertainty for builders. A recent NAHB/Wells Fargo survey reported that 78% of builders find it difficult to price their homes, as they aren’t sure what the cost of materials will be and how much the homes will end up selling for. A lack of builder confidence could be part of the reason why some home prices were cut in May.

The overall story of 2025’s new construction boom is complicated and still developing. We’ll be following this story, but in the meantime, what could it mean for the market if estimates truly pan out?

How New Homes Could Reshape the Market 

1,150,000 privately-owned single family housing units were forecasted to be started in the first few months of 2025, according to data from the U.S. Census Bureau/HUD and NAR. What will the effect of this boom be?

Increased housing supply may indicate a rise in home sales, says Lawrence Yun, the chief economist at NAR. When more options are available, sellers who have otherwise felt trapped with their current homes and mortgage rates will finally feel comfortable putting their homes on the market and making moves that have thus far been delayed.

We will probably also likely see home prices holding their value and sales rising as mortgage rates decline and inflation rate declines, according to U.S. News and World Report. Home prices are expected to grow more gradually through the end of the 2020s as new listings and builds are added to the market.

Rents could also be affected. But exactly how, experts aren’t sure. An influx of new supply could do one of two things. On one hand, it could attract higher-income renters looking to upgrade, driving up prices and causing gentrification. On the other, many are hopeful that new supply of the right kind (think missing middle, affordable, and starter homes) could stabilize rents instead by providing relief to unmet demand in the market.

We can’t fully understand the impact of new housing supply on rents yet, simply due to the sheer number of factors at play here. But one study (Li, 2020, sponsored by Fannie Mae’s Economic & Strategic Research Group) with an innovative model studied this question in New York City, where it was found that for every 10% increase in housing units, local rents declined by 1% over the following five years. The study reported similar findings for home prices – new market-rate housing supply lowered local home prices despite also attracting new amenities (which would otherwise increase prices). If this study is at all representative of other large markets, we could be looking at lower rent or at least slower rent inflation in the coming years if new inventory arrives.

An X-Factor: Zoning Laws 

Experts agree that zoning laws are one of the most influential barriers to housing affordability. Many homeowners and renters support relaxing restrictive land use laws to allow for higher density and more homes to be built. Less restrictive and exclusionary zoning could increase the homeownership rate, reduce the equity gap, reduce rents, and lower other everyday expenses for families, such as transportation costs. And experts think it will be highly effective—even more so than other common solutions to housing unaffordability, like providing tax credits to incentivize new construction or converting urban commercial zones for residential use.

But is zoning reform even on the docket for most neighborhoods? Legislation to this effect is receiving traction in several states including Vermont, where an innovative affordable housing plan involving zoning reform has been backed by the state’s legislature. NAR reports that Vermont just joined four other states (Oregon, California, Washington, and Montana) in preemptively banning restrictive zoning codes that prohibited duplexes and other “missing middle housing” from being built in single-family-only zones.

NAR says moves like Vermont’s go “beyond affordable housing” by supporting other community values like equity, the environment, and strong economies. But whether other states will follow suit remains something to watch for in the coming year.

Positioning Your Portfolio  

New homes are attractive to buyers for several reasons. For one, newer homes generally have fewer maintenance issues and lower costs to maintain (in theory). New homes are also easier to purchase, cleaner, updated, and move-in ready. For buyers looking for flexibility, purchasing a new build gives you the most control over your closing date, discounts, negotiations, and even location and rental appeal.

So, when new supply does finally hit the market, investors will likely be keeping their eyes on the market for great properties with promising returns.

As a smart buyer, tread carefully and heed this brief word of caution about questionable workmanship. Several experts warn that poor workmanship could increase during a construction boom, primarily due to the high pressure and tight timelines expected of subcontractors to complete their work. Currently, the construction industry is said to be short up to 500,000 workers. As an investor, keep quality insurance top of mind, and be sure to enlist the services of an experienced home inspector.

Another caution to keep top of mind during the construction boom is potential insurance hurdles. If you’re intending on buying newly constructed homes in certain parts of the country where natural disasters are more prevalent (think hurricane-plagued Florida or wildfire-prone California), securing homeowner’s insurance for your new property may be more difficult than you’re expecting. In the coming year, insurers will also be looking to impact the way homes are built on a more granular level, especially in these regions. It’s an important factor to keep in mind as you consider your next investment.

Affordable Homes Ahead? 

New construction probably isn’t going to rid the nation of its national housing shortage or substantially reverse the affordability crisis by the end of the 2020s. However, it may ease what has amounted to tremendous strain in certain geographic areas. And both homeowners and renters alike will feel the effects. For investors, it could mean new opportunities, accessibility into new markets, and movement for many who have been frozen by high prices and mortgage rates. Whether and where the new homes appear, change in some form will inevitably follow.