The prevailing narrative within the United States real estate industry—and among federal policymakers—is that the nation suffers from a catastrophic housing shortage numbering in the millions of units. This perceived deficit is frequently cited as the primary driver of record-high home prices and an escalating rental affordability crisis. However, new longitudinal research conducted by Kirk McClure, Professor Emeritus at the University of Kansas, and Alex Schwartz, Professor at The New School, suggests that this fundamental assumption may be flawed. By analyzing U.S. Census Bureau data and tracking household growth against housing production from 2000 to 2020, the researchers concluded that the total supply of housing has actually outpaced demand across the vast majority of American metropolitan markets.
The Quantitative Challenge to the Shortage Narrative
The study’s findings center on a comparison of three critical metrics: population growth, household formation, and housing unit production. Between 2000 and 2020, the U.S. population grew by approximately 17.8%. During the same period, household formation—a more accurate measure of housing demand, as it represents individual units of living—grew by 20.3%. Critically, the total housing stock grew by 21.2%.
This data indicates that housing production did not merely keep pace with demand but exceeded it on a national level. According to Professor McClure, the fact that household formation grew faster than the total population is only possible if there was an ample inventory of housing available to accommodate new households. While critics often argue that the nation has been under-building since the 2008 financial crisis, the research suggests that the massive surplus of units constructed during the early 2000s housing bubble created a significant "overhang" that cushioned the subsequent slowdown in construction.
To ensure the national figures were not skewed by "aggregation bias"—where declining rural areas or rust-belt cities mask shortages in high-growth markets—McClure and Schwartz examined over 900 metropolitan and micropolitan areas. After filtering out 140 declining markets, they analyzed the remaining 760 growing metropolitan areas. They discovered that only 19 of these markets—less than 3%—actually experienced a genuine shortage where housing production failed to keep pace with household formation.
A Chronological Conflict: 2000 vs. 2010 Baselines
The discrepancy between McClure’s research and widely cited reports from organizations like Freddie Mac and the National Association of Realtors (NAR) often boils down to the selection of a baseline year. Many industry studies utilize 2010 as their starting point, focusing on the decade following the Great Financial Crisis (GFC).
From 2010 to 2020, housing production was undeniably lower than historical averages as the construction industry recovered from a systemic collapse. However, McClure argues that starting in 2010 provides an incomplete picture. During the decade of 2000 to 2010, the U.S. built roughly 140 housing units for every 100 households formed. This period of extreme overproduction created a multimillion-unit surplus.
When the timeline is expanded to include the years 2000 through 2020, the "glut" of the early 2000s and the "lean years" of the 2010s average out to a market that is largely in balance or slightly oversupplied. By ignoring the pre-2010 surplus, other models may be misinterpreting a market correction as a permanent structural shortage.
The Role of Repressed Household Formation
Alternative research, such as that produced by Moody’s Analytics, suggests that the "shortage" is hidden by repressed demand. This theory posits that household formation rates among younger cohorts, particularly Gen Z and Millennials, are lower than they should be because high costs prevent them from moving out of their parents’ homes or living independently.
Under this logic, if housing were more affordable, millions of additional households would form, thereby revealing a massive supply deficit. While McClure acknowledges that affordability impacts household formation, he contends that attributing the entirety of this trend to a lack of physical units is reductive. He points to a confluence of economic headwinds facing younger generations, including:
- Escalating Student Loan Debt: High debt-to-income ratios prevent younger workers from meeting the 28/36 underwriting rules required for mortgages.
- Stagnant Real Wages: While aggregate wealth has increased, wages for entry-level and service-sector roles have not kept pace with the cost of living.
- The "Gig Economy" Hurdle: Lenders typically require proof of steady, long-term employment, which is often difficult for freelancers and contract workers to provide, regardless of their total earnings.
Wealth Concentration and the K-Shaped Housing Market
If the U.S. has a sufficient number of housing units, the question remains: why are prices and rents at record highs? McClure’s research points toward a "K-shaped" economic reality where housing prices are driven by aggregate wealth rather than a simple unit count.
Data from the Federal Reserve and the Case-Shiller Home Price Index show that home prices track very closely with mean (average) household income rather than median household income. This suggests that high-income, high-wealth households are pulling up the market. For these affluent buyers, the U.S. tax code provides significant incentives, such as the capital gains exemption on primary residences, which allows individuals to exclude up to $250,000 (or $500,000 for married couples) of gain from the sale of their home.
In this environment, housing becomes a preferred vehicle for wealth storage. This bids up prices in desirable submarkets, creating an affordability crisis for the median earner even when physical units are available.
The Inefficiency of Supply-Side Subsidies
The research also calls into question the effectiveness of federal programs designed to stimulate housing production, most notably the Low-Income Housing Tax Credit (LIHTC). Currently, the U.S. spends between $11 billion and $15 billion annually on this program. However, McClure identifies a "displacement effect" where the construction of subsidized units often discourages the development of market-rate units.
Research suggests that for every 100 tax-credit units built, approximately 85 fewer market-rate units are constructed. Furthermore, LIHTC units often fail to reach the populations in greatest need. While "extremely low-income" households require rents in the $500 to $700 range to remain stable, many tax-credit properties are brought to market with rents between $1,200 and $1,400.
"We are essentially overbuilding in the middle of the market where there is already saturation," McClure noted. "Adding more units in that segment does not necessarily cause prices to filter down to the bottom because the math of construction and financing doesn’t allow it."
Policy Implications: Vouchers over Hammers
The study concludes that the housing crisis is primarily one of income and affordability rather than a lack of physical structures. Consequently, the researchers argue for a shift in federal policy away from production subsidies and toward direct rental assistance.
Currently, the Housing Choice Voucher program (Section 8) only serves about one in four eligible low-income households. In many major cities, waiting lists for these vouchers are measured in years. McClure suggests that expanding this program would be a more cost-effective way to address the crisis. By providing households with the means to afford existing units, the government could utilize the 14 million vacant homes currently in the U.S. inventory—many of which are vacant due to a mismatch between local rents and local incomes.
Broader Impact and Future Outlook
As the U.S. looks toward the next decade, demographic shifts may further complicate the "shortage" narrative. Birth rates are declining, and immigration levels remain a subject of political volatility. If population growth continues to slow, the risk may shift from a housing shortage to a housing surplus in certain markets.
For investors and developers, the research serves as a cautionary note. Underwriting deals based on the assumption of a permanent national shortage may lead to over-leveraging in markets that are already near saturation. If rents begin to stagnate or decline—a trend already appearing in certain Sun Belt multifamily markets through increased concessions and flat nominal rents—the feasibility of high-cost new builds may diminish.
Ultimately, the McClure-Schwartz study suggests that the "simple" answer of building more units may be an inadequate solution for a complex problem rooted in income inequality, tax policy, and wealth concentration. Addressing the American housing crisis will likely require a more nuanced approach that prioritizes the financial stability of the renter over the raw production of new rooftops.
