Experts tell Connecticut lawmakers housing shortage driven by low inventory, high costs and aging stock

Dr. Yuan, an economist who presented the state housing overview, told a Connecticut legislative housing forum that the state’s housing market is constrained by very low inventory and an aging housing stock, and forecast mortgage rates settling at a new normal around 6 to 6.5 percent.

The presentation and follow‑up panel, which included Bob Weidman of the Home Builders and Remodelers Association of Connecticut and Danushka Naniyakara Skillington of the National Association of Home Builders (NAHB), examined demand and supply drivers, construction costs, and possible state and federal policy responses.

Dr. Yuan opened by describing inventory as “very, very low” and said that while inventory shows some increase it remains well below historical norms. He emphasized that a portion of homeowners are “locked in” to low mortgage rates — particularly those with rates below 3 percent — which reduces turnover and further depresses available supply. “I think it will settle down at a new normal of 6 to 6 a half percent,” Dr. Yuan said of long‑run mortgage rates.

Why it matters: Lawmakers and builders said the shortage is pushing prices and rents higher, squeezing first‑time buyers and renters and reducing the number of starter homes available. NAHB data presented at the forum estimated a nationwide shortage of about 1,500,000 housing units; presenters said Connecticut’s most recent available estimate showed a deficit of roughly 9,400 units for sale and 14,500 rental units (data year: 2021).

National and Connecticut trends: Skillington, assistant vice president for forecasting and analysis at NAHB, told the committee that the national economy and labor market remain strong, but that Connecticut’s job growth has lagged national averages, which will likely slow housing demand relative to faster‑growing Sun Belt states. She said home prices nationwide and in Connecticut have risen substantially since February 2020; NAHB figures shown to the committee indicate Connecticut existing‑home prices are about 58 percent higher than that baseline.

Supply constraints and costs: Presenters traced the shortage to decades of underbuilding and a range of production headwinds. NAHB slides cited a 34 percent rise in aggregate construction costs over the past four years, driven in part by sharp increases in items such as distribution transformers (+71 percent), gypsum/drywall (+49 percent), steel (+37 percent) and ready‑mix concrete (+35 percent). Lumber prices have eased from their 2021–22 peaks but remain a cost concern.

Builders and developers also face tighter financing: Skillington said acquisition, development and construction (A, D & C) loan rates for many builders are now roughly 10 to 12 percent, up from 5–6 percent before 2022. NAHB’s recurring estimate of regulatory costs placed combined federal, state and local regulatory charges at roughly $94,000 per single‑family home (about $41,000 in development‑phase costs and $52,000 in construction‑phase costs) and estimated regulation represented roughly 41 percent of multifamily development costs.

Local manifestations: Presenters and legislators noted the shortage is localized; some Connecticut markets show multiple offers and short listing times, while others include listings that sit unsold. NAHB figures shown to the committee put statewide homeownership at roughly 65.7 percent and indicated large shares of households are priced out of new construction. Skillington said NAHB’s affordability analysis found a very high share of Connecticut households unable to purchase a new median‑priced home.

Policy options discussed: Committee members and presenters discussed several policy responses that were described during the forum: federal tax relief (raising or modifying the capital‑gains exclusion on home sales so older homeowners are not “locked in” by tax liabilities), targeted state loan or credit support to lower builders’ financing costs for starter homes and condos, reuse of underutilized state land for affordable or starter housing under conditional redevelopment agreements, and local zoning reforms to allow townhouses, duplexes and other smaller‑lot, higher‑density housing.

Representative Anthony Felipe (ranking member, House housing) asked whether a capital‑gains cap or exemption could encourage older homeowners to downsize and free up starter homes. Skillington said NAHB and allied groups are discussing federal options, and Dr. Yuan said national advocacy has focused on the effectiveness of increasing current exclusions to reduce disincentives to list.

Representative Cindy Wood (chair, House Insurance Committee) and Representative Doucette said they are exploring legislation to provide targeted low‑interest loans or a state backstop for construction financing and noted potential coordination with the Connecticut Housing Finance Authority (CHFA). Bob Weidman and Skillington described zoning reform and density as key levers for lowering per‑unit land costs and making smaller homes financially viable.

Questions and data: Committee members pressed presenters on data sources and geographic variation. Presenters cited US Bureau of Census and HUD fair‑market rent data, and NAHB state‑level dashboards shown during the hearing. Skillington and Dr. Yuan cautioned that some housing metrics are lagged and that certain census estimates used for deficit calculations were the latest available (2021) but may not reflect very recent local changes.

Where this goes next: The committee asked to receive the slides and data shown during the hearing. Several lawmakers said they plan to pursue targeted pilot programs — such as a state loan or backstop for specific housing types, and use of state‑owned land — and to continue discussions with builders, lenders and CHFA.

Ending note: Presenters emphasized that no single policy will close the shortfall: they urged a mix of finance, regulatory, zoning and supply‑side actions at federal, state and local levels to expand starter‑home and multifamily supply and to ease affordability pressures.