The prevailing narrative in American economics suggests that the United States is mired in a housing shortage of "millions of units," a deficit frequently cited by developers, politicians, and institutional investors as the primary driver behind skyrocketing costs. However, a comprehensive analysis by Kirk McClure, Professor Emeritus at the University of Kansas, and Alex Schwartz, Professor at The New School, challenges this fundamental assumption. By comparing household growth against housing production across more than 900 U.S. markets between 2000 and 2020, the researchers found that in the vast majority of metropolitan areas, the production of housing units actually outpaced the formation of new households. Their findings suggest that the modern affordability crisis is not a product of a physical scarcity of rooftops, but rather a profound disconnect between stagnating middle-to-low incomes and the concentration of wealth at the top of the economic spectrum.
The Data: Production vs. Formation
The research conducted by McClure and Schwartz utilizes decennial census data to track three critical metrics: population growth, household formation, and housing unit production. Between 2000 and 2020, the U.S. population grew by 17.8%. During that same period, household formation—a more accurate measure of housing demand—grew by 20.3%. Critically, the total housing stock grew by 21.2%.
According to the study, the fact that housing units grew faster than household formation contradicts the "shortage" narrative on a national scale. While a physical shortage can exist in specific hyper-growth markets, the researchers found that out of roughly 760 growing metropolitan areas, only 19 showed a genuine deficit where production failed to keep pace with demand. In the remaining hundreds of markets, the inventory of units expanded more rapidly than the number of people seeking to occupy them.
To ensure the data was not skewed by declining rural or "micropolitan" areas, the study filtered out approximately 140 markets with declining populations, such as New Orleans or various Rust Belt cities. Even after focusing exclusively on growing markets, the surplus of production over demand remained consistent.
The Baseline Debate: 2000 vs. 2010
A significant portion of the current housing narrative relies on studies from organizations like Freddie Mac or the National Association of Realtors (NAR), which often conclude that the U.S. is short between 3.8 million and 5.5 million homes. McClure argues that these conclusions are heavily dependent on the "baseline year" selected for the study.
Many institutional studies use 2010 as their starting point. By 2010, the U.S. was in the depths of the Great Recession; housing starts had plummeted, and the construction industry had effectively stalled. If an analyst looks only at the decade from 2010 to 2020, the data shows that household formation outpaced construction, creating an apparent shortage.
However, McClure posits that 2000 is a superior baseline because it captures the massive "overhang" of inventory created during the housing bubble of the mid-2000s. Between 2000 and 2010, developers built roughly 140 units for every 100 households formed. This massive glut of supply provided a buffer that the market drew upon during the subsequent decade of slower construction. When viewed over a 20-year horizon, the "shortage" identified by Freddie Mac disappears, as the pre-2010 surplus balances the post-2010 slowdown.
Suppressed Demand and the Gen Z Factor
Critics of the McClure-Schwartz study, including analysts from Moody’s Analytics, argue that current household formation rates are artificially low because of the very shortage McClure disputes. This concept, known as "suppressed demand," suggests that younger generations—specifically Gen Z and late Millennials—would form households at higher rates if more units were available and affordable. Instead, high costs force many to live with parents or roommates.
McClure acknowledges this trend but attributes it to financial barriers rather than a lack of physical units. He points to high student loan debt, the rise of the "gig economy" which makes securing traditional mortgages difficult, and a lack of steady, high-wage employment for young workers. "If more units were there, would Gen Z have a higher household formation rate? Probably marginally," McClure noted. However, he argues that the primary obstacle is the "28/36 rule" used by banks, where debt-to-income ratios prevent young buyers from entering the market, regardless of how many new luxury apartments are built.
The K-Shaped Economy and the Case-Shiller Index
If there is no physical shortage of homes, the question remains: why are prices and rents at record highs? The study points to the "K-shaped" nature of the U.S. economy, where aggregate wealth is increasing at the top while the median household struggles to keep up.
Using the Case-Shiller Price Index, which tracks the value of "constant quality" homes over time, researchers compared housing prices to mean and median incomes. While housing prices have decoupled from the median household income—creating an affordability crisis for the average worker—they track very closely with the mean (average) household income. This suggests that the high-income, high-wealth segment of the population is bidding up the price of the existing housing stock.
Because the U.S. tax code treats primary residences generously—allowing for significant capital gains exemptions—housing has become a primary vehicle for wealth preservation among the affluent. This "bidding up" of owner-occupied homes eventually trickles down into the rental market. As middle-income households are priced out of buying, they remain in the rental pool longer, increasing competition for apartments and allowing landlords to raise rents, even if vacancy rates are technically healthy.
The Failure of Supply-Side Subsidies
A common policy response to high housing costs is the expansion of supply-side incentives, most notably the Low-Income Housing Tax Credit (LIHTC). The federal government spends between $11 billion and $15 billion annually on this program to encourage developers to build affordable units.
However, McClure’s research highlights a phenomenon known as "displacement." Data suggests an 85% displacement rate, meaning that for every 100 tax-credit units built, 85 fewer market-rate units are constructed. Furthermore, because construction costs are so high, even "affordable" tax-credit units often require rents of $1,200 to $1,400 per month to be feasible for developers. This does nothing for the "extremely low-income" households who can only afford $500 to $700 per month.
"We are adding to a segment of the market that arguably already has saturation," McClure argued. By building for the middle-income tier and hoping for a "filtering" effect that never reaches the bottom, the government is failing to address the core of the crisis.
Policy Implications: Vouchers vs. Hammers
The study concludes that the solution to the housing crisis is not more construction, but more robust rental assistance. McClure advocates for a significant expansion of the Housing Choice Voucher (Section 8) program. Currently, the program is so underfunded that only one in four eligible low-income households receives assistance, with waiting lists in major cities often spanning years.
The logic is that since the physical units already exist—evidenced by the 14 million vacant homes and the production-to-formation ratio—the government should focus on closing the "income gap." By providing vouchers that allow low-income families to pay 30% of their income toward rent while the government covers the rest, the market could utilize existing inventory more effectively without the high cost and slow timeline of new construction.
Broader Impact and Future Outlook
As the U.S. faces a potential demographic shift, with declining birth rates and aging populations, the "overbuild" in the middle market could lead to future instability. McClure warns that if the market continues to produce luxury and middle-tier units that the general population cannot afford, the risk of defaults and foreclosures increases if a significant economic downturn occurs.
Furthermore, there is growing debate in Washington regarding the capital gains exemption on home sales. Currently, couples can exempt up to $500,000 in profit from taxes. While some argue this should be increased to account for inflation, McClure suggests that such a move would only further subsidize the wealth-building of the top 15% of homeowners, exacerbating the income stratification that drives the housing crisis in the first place.
Ultimately, the research suggests that the "missing millions" of homes may be a statistical illusion created by a narrow focus on post-2010 data. By shifting the focus from "hammers and nails" to income support and tax reform, policymakers may find a more sustainable path toward housing stability for all Americans. The crisis, it seems, is not that the U.S. cannot build enough houses—it is that it cannot build enough wealth for those who need to live in them.
