BAM Key Details:
- Zillow reports residential building permits fell 1.7% over the 12 months ending July 2026, running 19.4% below the pre-pandemic trend.
- Single family home completions fell to about 817,000 in 2025, the lowest total since 2020.
- Not all economists interpret the data as evidence of a prolonged housing shortage. Ivy Zelman recently argued against the idea of a shortage and focused instead on the affordability of existing supply.
Residential building permits fell 1.7% in the 12 months ending July 2026, now running 19.4% below where the pre-pandemic trend line said they should be.
It’s the widest shortfall of the decade, following 44 straight months of year-over-year declines.
Zillow’s latest analysis shows the construction boom that reshaped housing after the pandemic is running out of room. Completions of detached single-family homes fell for the third year in a row in 2025.
Thing is, that doesn’t necessarily point to a housing shortage. We’ll get to that.
Read on for a quick breakdown of Zillow’s analysis and what it contributes to the fuller picture of housing inventory in the U.S.
Permits Sink to a Post-Pandemic Low
The scale of the pullback stands out even against a market that’s been slow to build for years.
- 1.42 million residential permits were issued in the 12 months ending July 2026, down 1.7% from the year before
- Permitting is running 19.4% below the pre-pandemic 2016 to 2020 trend line, the widest shortfall this decade
- Permits have fallen year over year for 44 consecutive months
Zillow senior economist Dr. Kara Ng says the retreat makes sense on its own terms, even if it comes with a catch.
“Builders are responding to a softer market by pulling back, especially in the places they’d been building the most. That’s an understandable reaction to today’s conditions, but the housing shortage that drove the building boom is still very much intact. The concern is that when conditions improve and buyers return, the thinner pipeline could mean a tighter market that drives up prices.”
In other words, building less now could make the next upswing harder on buyers. That largely depends on where you and your buyers are situated.
Where Builders Are Pulling Back and Ramping Up
The pullback is concentrated in the same Sun Belt markets that led the building boom in the first place.
- Austin permits fell 25.3% over the past year, the biggest drop among major markets
- San Antonio fell 24.1%, the second largest decline
Rising inventory in both metros is making it harder for builders to justify breaking ground on new projects.
On the coasts and in the Midwest, permitting is picking up after years of subdued building.
- San Jose permits more than doubled, up 122%
- Seattle rose 35.8%
- Birmingham rose 32.9%
- Los Angeles rose 30.6%
- San Francisco rose 29.0%
Those numbers look dramatic mainly because they’re coming off a low base. Los Angeles issued 34,696 permits over the past year, a little over half of what Dallas (61,275) and Houston (59,214) brought in.
Smaller Homes, Faster Builds
Completions of detached single-family homes fell to about 817,000 in 2025, down 2.5%, the third straight annual decline and the lowest total since 2020. But 2025 completions were still 4.4% above 2019 levels.
Out of necessity, builders are also adjusting what they build to reduce overall costs:
- Median new home size fell to 2,300 square feet in 2025, down from 2,400 in 2019
- Median lot size fell to 8,700 square feet, down from 9,000
- Median build time dropped to six months, a month faster than the 2022 to 2023 supply chain peak
Buyers still in a position to buy are rewarding the move-in ready homes builders are producing.
- Turnkey homes sell for 2.9% more than expected
- Fixer-uppers sell for 14% less
Even a smaller home, with a smaller footprint, is usually a step up from renting a two-bedroom apartment, especially when the costs of upkeep are low. It becomes more of a question mark when the would-be buyer is looking at an older home in need of costly repairs.
Not Everyone Agrees There’s a Shortage to Fill
Not every economist reads these numbers as bad news. Ivy Zelman, who co-founded Zelman & Associates in 2007 and now serves as EVP at Zelman, a Walker & Dunlop company, has been making this case since at least the spring of 2025. BAM covered her 2025 debate with fellow housing economist Logan Mohtashami.
In a January 2026 interview, Zelman laid out her case, saying the number of homes being built is roughly matching demand. The real shortfall, in her view, is in homes priced within reach of typical buyers.
“We have a shortage of affordable, available homes.”
She’s made a similar point in comments Byron Lazine discussed on Hot Sheet, arguing builders have plenty of homes in the pipeline that just aren’t priced for the buyers who need them.
The same trend is visible in the rental market.
Zelman cut her 2026 multifamily rent growth forecast to 1.9%, pointing to oversupply concentrated in the Sun Belt, the same region where Zillow shows builders pulling back the fastest.
Zillow estimates the shortage as 4.7 million missing homes nationwide. Zelman sees it as supply keeping pace with new households forming and says the real issue is what those homes cost to buy or rent.
How the Let America Build Campaign Could Help
At least 15 big names in real estate, including Realtor.com, Zillow, and the National Association of Home Builders (NAHB) have joined the Let America Build campaign, which launched yesterday.
The campaign’s goal is to loosen restrictive policies and boost new construction by freeing up available land and reducing the cost of building new and affordable homes.
The less cost builders have to absorb, the more they can pass those savings on to buyers.
Where This Leaves Agents & Homebuyers
The permit numbers show builders slowing down. But there’s more than one way to interpret that, even on a national level, not to mention market by market.
That said, Zelman’s analysis focusing more on the affordability of existing inventory doesn’t negate what buyers and renters today are experiencing as a lack (or severe shortage) of housing options, even if the real issue is that most homes on the market don’t fit their budget.
In short, she’s not saying we have plenty of housing. She’s saying the “housing shortage” narrative isn’t focusing on the right things.
Builders are building to match demand, which relies on household formation, but they’re also dealing with higher building costs, due in large part to local regulation fees, which puts affordable housing to the back of the line (or off the board).
That’s where the Let America Build campaign could change things for the better.
Buyers are feeling those higher costs both as a higher bar to entry and as a constraint on their ability to save toward a down payment.
Having more options would tilt both markets more in their favor, making it easier (on both fronts) for renters to become homeowners.
