For years, the narrative surrounding the American housing market has been uniform and relentless: The United States is suffering from a catastrophic shortage of housing units, and the only path toward affordability is to build our way out of the crisis. From Wall Street boardrooms to federal legislative sessions, the consensus has been that supply is failing to meet demand.
However, new research from academics Kirk McClure and Alex Schwartz is challenging the very foundation of this belief. By analyzing two decades of census data, the researchers suggest that the "housing shortage" narrative is not only flawed—it may be entirely incorrect.
Main Facts: Challenging the Conventional Wisdom
The core premise of the housing shortage narrative is that household formation—the creation of new families, roommates, and individual living units—has vastly outpaced the construction of new homes.
Kirk McClure, professor emeritus at the University of Kansas, argues that when looking at the national aggregate from 2000 to 2020, the data tells a different story. Over that 20-year span, the U.S. population grew by roughly 18%, while household formation grew by 20.3%. Critically, the supply of housing units grew by 21.2%.
"The housing stock grew faster than household formation, which grew faster than population," McClure explains. "That makes it a little hard to square with the notion of a shortage."
McClure and Schwartz’s study examined over 900 metropolitan and micropolitan markets. After filtering out areas with declining populations, they found that of the remaining 760 markets, only 19 exhibited a genuine shortage of housing relative to household growth.
A Chronology of a Misunderstood Market
To understand how the "shortage" narrative became so pervasive, one must look at the starting points chosen by various analysts.
The 2000 Baseline
McClure argues that 2000 serves as a statistically sound starting point. The 1990s were characterized by balanced economic growth, steady wage increases, and a proportional relationship between population growth and housing supply. It was a period of equilibrium.
The 2010 Distortion
Conversely, many industry-standard reports—such as those from Freddie Mac—often utilize 2010 as a starting point. McClure notes that 2010 represents a major statistical anomaly: the immediate aftermath of the Great Financial Crisis and the collapse of the housing bubble.
"During the decade of 2000 to 2010, we built in excess of 140 units for every 100 households," McClure points out. "When you have this huge, multi-million unit overhang of extra housing, 2010 becomes a poor starting point because it forces you to measure the recovery against a massive glut." By ignoring the surplus created in the early 2000s, analysts inadvertently concluded that the subsequent slowdown in building was a failure of supply, rather than a necessary correction to an oversupplied market.
Supporting Data: Why "Shortage" Isn’t the Right Word
If there is no physical shortage of units, why does the housing market feel so hostile to the average American? McClure suggests the issue is not one of volume, but of affordability and income distribution.
The K-Shaped Economy
The disconnect between housing supply and affordability is largely driven by a diverging economy. High-income households have seen significant wealth accumulation, and they are competing for a limited pool of high-end housing. Because the tax code treats primary residences as highly favorable investment vehicles, these high-net-worth individuals bid up prices, effectively pulling the entire market upward.
The "Gen Z" Barrier
While some institutions argue that lower household formation among younger generations is due to a lack of housing, McClure disagrees. "It’s this whole problem of school being costly, so they’re coming out with debt," he notes. "They have a hard time finding the necessary money to make the first and last month’s payment just to sign a lease."
When potential renters are burdened by student loans, stagnant wages, and the requirement for steady, non-gig employment to qualify for credit, they remain in "non-household" status—often living with parents. Building more units in this environment does not automatically translate into more households; it simply adds supply that the target demographic cannot afford.
Official Responses and Policy Implications
The debate over the housing shortage has significant ramifications for federal policy, particularly regarding the Low-Income Housing Tax Credit (LIHTC) and federal spending.
The Failure of Supply-Side Subsidies
McClure warns that government efforts to incentivize construction, while well-intentioned, often fall short. He cites data suggesting that for every 100 tax-credit-subsidized units built, there is an 85% displacement rate of market-rate units. Developers essentially shift their focus to subsidized projects, leading to a negligible net gain in total units. Furthermore, many of these "affordable" units are being built at rent levels that still exceed the reach of the extremely low-income population.
A Shift Toward Direct Assistance
If the issue is not a lack of units, but a lack of purchasing power among the poor, then the policy focus should shift from "hammers and nails" to direct rental assistance.
"The housing choice voucher goes to the hand of the household," says McClure. "We know the units are out there. We have much greater beneficial effect [by helping renters] than overbuilding the middle-price rental apartments."
Implications for the Future: Overbuilding vs. Over-taxing
Looking ahead, McClure warns of a dangerous outcome: the nation may end up overbuilding in the middle-market, creating a surplus of properties that serve the middle class while leaving the truly needy behind.
The Risk of Overbuilding
If the government continues to incentivize construction based on the faulty assumption of a national shortage, the market may eventually face a reckoning. If supply exceeds real demand, the resulting price drops could trigger defaults and foreclosures. However, as McClure notes, the current market is "sticky." Property managers are often resorting to "concessions"—like free rent months or waived fees—to maintain the appearance of stable rent prices without officially lowering them.
Reevaluating Wealth Subsidies
Finally, the research suggests that the U.S. should reconsider how it subsidizes homeownership. Currently, the capital gains exemption on primary homes provides significant tax relief to households that may not need it.
"I can see social value in that for a guy who is standing behind a cash register… I’m not sure I see value for that for the households that are up there in the mid-six figures," McClure argues. By shifting the focus away from broad-based tax breaks and toward targeted support for those who truly need help entering the housing market, the U.S. could potentially address the affordability crisis without relying on the inefficient, and perhaps unnecessary, goal of mass construction.
In conclusion, the "housing shortage" is a pervasive, but potentially inaccurate, narrative that obscures deeper, more complex issues of income inequality and fiscal policy. By acknowledging that the physical supply of housing is largely sufficient, policymakers may finally be able to pivot toward solutions that actually help the families most in need of a home.
