A big culprit to the ongoing housing shortage: The dwindling number of new-home construction over the last several years. A new study from John Burns Real Estate Consulting is putting it into perspective at just how much new-home construction has been lagging: The top 10 housing markets in the country are building at a rate that is 54% lower than they were 14 years ago.

Markets like Chicago, Riverside-San Bernardino, Calif., and Las Vegas have been building just 18%, 21%, and 29% from their peak construction levels in 2005 and 2006 respectively, the research shows. Chicago has plunged from the seventh largest new single-family housing market to the 32nd largest. In Atlanta, builders are constructing 36,000 fewer homes than in 2005. Phoenix has built 37,000 fewer in that time.

Builders have pointed to ongoing labor and lot shortages and rising costs of materials to explain why they haven’t ramped up calls for more new homes, despite rising calls from the industry to do so.

“Cost increases at every step of the way have pushed home prices to a point where home builders find it very difficult to build homes priced $250,000 and below in places where most people want to live,” writes Erik Franks, senior vice president at John Burns Consulting, on the study’s findings. “There is plenty of total housing demand, but most of the demand is below today’s new home prices.”

In 2003, half of the new homes nationwide were priced below $191,000; today, half of new homes are priced above $313,000. Fifteen of the 18 largest publicly traded home builders boast an average sales price of $365,000 or more.

Builders are trying to respond to the urgent calls for more new homes to meet buyer demand. Some entry-level builders are building on smaller lots, using less costly materials, or moving further from job centers, Franks reports.

While Houston (#3 in 2005) and Dallas (#5 in 2005) have largely recovered, the other markets have not. Atlanta builders are building 36,000 fewer homes than in 2005, and Phoenix builders are building 37,000 fewer.

Chicago, Riverside-San Bernardino, and Las Vegas stand out the most, building just 18%, 21%, and 29%, respectively, of peak construction levels of 2005/2006! Chicago has fallen from the 7th-largest single-family housing market in the country to the 32nd-largest market.

We get asked all the time when the US will return to 1 million or more single-family housing units, and our quick, somewhat flippant answer is “when the builders can make money selling 1 million homes.” Cost increases at every step of the way have pushed home prices to a point where home builders find it very difficult to build homes priced $250,000 and below in places where most people want to live.

There is plenty of total housing demand, but most of the demand is below today’s new home prices. In 2003, before subprime lenders broke the rules, half of the new homes in the country were priced below $191,000. Today, half of new homes are priced above $313,000, and 15 of the 18 largest publicly traded home builders sport an average sales price north of $365,000.