This post takes a look at housing shortage calculation methodologies through the lens of a recent whitepaper by Moody’s Analytics and their partners “Bringing the Housing Shortage Into Sharper Focus” about the national housing shortage. One of the purposes of the paper is to build consensus on the shortfall, which has a variety of estimates from different sources as summarized in the table below.

Moody’s Analytics housing shortage calculation methodology

The Moody’s paper boils down the housing shortage to just two adjustments, one for each of the supply- and demand-sides of the equation. The supply-side adjustment is based on a vacancy rate versus a stable target. The demand-side is based on pent-up household formation.

Active vacancy adjustment

Regarding the vacancy rate adjustment, CommunityScale has been following the methodology updates used by California’s Regional Housing Needs Allocation (RHNA), which first applied a flat rate of 5% vacancy for rental and owner-occupied units combined, and then shifted to a split rate of 1.5% for owner-occupied and 7.4% for rental. These constants come from a 2007 paper from Harvard’s Joint Center for Housing Studies’ “Projecting the Underlying Demand for New Housing Units: Inferences from the Past, Assumptions about the Future” which identified those target vacancy rates based on 1994 as a stable period in housing.

The Moody’s Analytics paper also “solves for the vacancy equilibrium”. In their methodology section, their finding lands on a 4% overall target vacancy rate as well as a rental vacancy rate of 8%, and the homeowner vacancy rate of 1.8% (using vacancy as defined by the Census Bureau). In their methodology, the two time periods of equilibrium were 1985-2000 and 2012-2019. These equilibrium rates are slightly higher than the Harvard rates, but within the same ballpark. Notably, in their analysis per geography, the stable vacancy rate is recomputed to be specific for each place to be responsive to areas that have historically had tighter markets or more vacant housing, such as vacation rentals.

Moody’s paper also applies a second calculation for the national estimate. This approach uses a subset of Census vacancy to calculate “active stock,” dropping what they have determined to be “inactive stock” (season homes and held off-market homes) from the equation. In this form of the calculation, rental and ownership are combined into a single target of 3.8% “active vacancy” (“active” defined as either occupied, awaiting occupancy, or currently for sale/rent in ACS). Using this methodology, the 2025 estimated national housing shortage is 778,000 units, determined by calculating the 3.26% current “active vacancy” versus the target of 3.8% “active vacancy” from the last period of housing equilibrium. Notably, the number of homes in 2025 calculated by active vacancy adjustment is down from the peak in 2021, indicating progress towards housing equilibrium.

Pent-up household formation adjustment

As the Moody’s paper states, household formation is fluid and difficult to calculate. Their model uses the observed trend in formation from 2011 to 2019, which closely aligns with the previous period of stable vacancy rates. The rate of household formation during this time was 1.1 million per year. As that rate of formation slowed in subsequent years, their calculation provides a simple estimate that there are 1.2 million households that are “pent-up”. These missing households would have appeared if previous trends continued.

It is worth noting that this paper’s pent-up household formation model is not general purpose. More precise methods for forecasting household formations at the scale of individual geographies would look at headship rate for age cohorts.

Other potential adjustments

At CommunityScale, we’re constantly reviewing what factors different jurisdictions are using to calculate their housing gap. The Moody’s paper does a great job breaking demand- and supply-side drivers into one variable each, but for context here are some other variables we see applied in other methodologies:

• Replacement adjustment: Typically 0.1% is applied to the total housing stock on an annual basis for the forecast horizon.
• Overcrowding adjustment: The difference between the community’s current overcrowding rate based on ACS data and the National average.
• Substandard adjustment: The difference between the community’s current substandard housing rate based on ACS data and the National average.
• Cost burden adjustment: Comparison against the national rate of severe cost burden.
• Jobs-housing balance: Achieve a target of 1.5 homes for every job.

Solve for the equilibrium

Defining what a healthy housing market equilibrium looks like is the first step to understanding current housing shortages, and in the case of CommunityScale, forecasting the future housing need as well. Moody’s pinpoints historical sweet spots when vacancy rates were stable (3.8% for “active” homes) and households formed predictably as the equilibrium level. Their methodology then simply measures the gap beneath this equilibrium line. Nationally, the US is 778,000 homes short on the supply side (with vacancy rates too tight at 3.26%) and missing 1.2 million households on the demand side who would have formed if not squeezed out by the shortage. This is a clear framework for understanding the housing crisis as the space between where we are and where a balanced market should be.