For years, the prevailing wisdom across the United States real estate sector has been direct and seemingly straightforward: the country is millions of homes short, and the only viable solution to skyrocketing housing costs is to build more units. Investors, developers, and industry analysts have leaned heavily on this foundational assumption to underwrite deals, shape portfolios, and lobby for policy changes. However, groundbreaking research from Kirk McClure and Alex Schwartz calls that core narrative into question, suggesting that most American markets actually possess enough total housing.
Dave Meyer, host of the "On the Market" podcast, recently sat down with Kirk McClure, a professor emeritus at the University of Kansas and co-author of the study, to dissect the findings. By comparing household growth and housing production across United States markets from 2000 to 2020, McClure and Schwartz arrived at conclusions that challenge standard industry assumptions about supply, demand, and the true drivers of housing affordability.
Examining the Data: Did Housing Supply Actually Outpace Demand?
The inspiration for the research stemmed from a desire to test a widely accepted working hypothesis. McClure and Schwartz initially assumed that a severe housing shortage existed, and they set out to measure how acute that shortage was across various regional markets. Specifically, they anticipated finding the most significant deficits in historically "hot" markets, such as Boston, New York, Washington, and Miami on the East Coast, alongside Seattle, San Francisco, Los Angeles, and San Diego on the West Coast.
However, when the researchers attempted to quantify the shortage and trace its translation into affordability metrics, the data simply did not support their initial assumption. Out of intellectual curiosity and skepticism toward their own results, they re-examined decennial census data spanning from 2000 to 2020.
The numbers revealed a surprising trajectory. Over that twenty-year period, the United States population grew by approximately 17.8 percent. Simultaneously, household formation—representing individual units of demand, such as young adults moving out of family homes into separate apartments—grew at a faster rate of 20.3 percent. Crucially, the housing stock itself outpaced both metrics, growing by 21.2 percent.
Statistically, households can only outpace population growth if there is an ample inventory of housing to absorb new formations. Yet, the supply of housing units grew even faster than household formation. This chronological sequence made it difficult to reconcile the data with the widespread notion of a nationwide housing shortage.
To ensure the findings were not skewed by aggregation bias—such as stagnant or declining populations in lagging metropolitan areas pulling down national averages—the researchers conducted a granular analysis. They tracked every county within metropolitan and micropolitan areas across the United States from 2000 to 2020. Out of roughly 900 metropolitan markets, after subtracting about 140 areas experiencing population declines, only 19 of the remaining 760-plus metropolitan areas exhibited a true shortage where housing production failed to keep pace with household formation.
Addressing the Timing and the Great Financial Crisis Baseline
A central debate in contemporary housing economics involves the baseline used for measuring supply deficits. Many prominent institutions, including Freddie Mac and various real estate associations, have concluded that the United States suffers from a deep housing deficit. However, their analyses frequently use 2010 as a starting point.
McClure explains that starting an analysis in 2010 captures the aftermath of the subprime mortgage bubble collapse and the onset of the Great Recession. While looking at the recovery period is a logical approach for tracking post-crisis development, McClure argues that it leads to a flawed conclusion because it ignores the massive oversupply that preceded it.
During the decade spanning from 2000 to 2010, homebuilders produced in excess of 140 units for every 100 new households formed—substantially higher than the standard requirement of 103 to 105 units needed to maintain a healthy inventory of vacant housing. Consequently, 2010 represented a period characterized by a massive multi-million unit overhang. While it is true that housing stock grew more slowly than household formation between 2010 and 2020 due to post-crisis construction slowdowns, that localized lag was simply compensating for the preceding glut. By taking a longer twenty-year view anchored in the balanced growth of the year 2000, McClure and Schwartz’s research smooths out these cyclical fluctuations.
Other prominent economic studies, such as modeling work from Moody’s, have taken nuanced approaches by tracking historical household formation rates across different demographic cohorts. These models suggest that younger generations, particularly Gen Z, are forming households at lower rates than previous generations did at the same age. While Moody’s attributes this lower formation rate largely to a shortage of housing units, McClure argues that the reality is more complex.
Younger adults face significant financial headwinds that extend far beyond housing availability. High costs of higher education have left many graduates burdened with substantial student loan debt, while elevated vehicle prices and living costs make it difficult to accumulate the savings required for upfront rental lease payments or mortgage down payments. Furthermore, strict banking guidelines regarding debt-to-income ratios and the necessity of stable, traditional employment make it difficult for gig workers or debt-burdened applicants to qualify for mortgages, keeping many young adults living with family members regardless of local housing inventory.
Re-evaluating Affordability, Income Inequality, and the K-Shaped Economy
If a nationwide shortage does not explain why housing has become so expensive, economists must look elsewhere to understand current market pressures. Recent research from Federal Reserve economists offers additional insight, pointing to aggregate income and wealth distribution as primary drivers of home prices.
Using the Case-Shiller home price index—which tracks constant-quality home sales over time—policymakers historically compared price trajectories against median household income. Through the 1990s, these metrics tracked closely together. However, starting around the turn of the century, home prices began detaching from median incomes.
Rather than viewing this solely as a supply failure, economic analysis points toward a K-shaped economic divergence. A significant segment of high-income, high-wealth households has accumulated substantial capital through equity markets and other investments. Because the tax code treats primary homeownership exceptionally well—exempting up to $500,005 of capital gains on home sales for married couples—wealthy households continually bid up the prices of owner-occupied housing. This upper-tier purchasing power pulls aggregate price indices upward, aligning closely with top-tier and mean incomes rather than median incomes.
The rental market presents a parallel dynamic. As prospective first-time homebuyers find themselves priced out of the ownership market due to high interest rates and steep purchase prices, they remain in the rental pool longer. This influx of higher-income tenants competing for rental housing drives up overall median rents, trapping lower-income wage earners in a cycle where rent growth outpaces wage gains.
While researchers acknowledge that a distinct shortage exists at the lowest end of the economic spectrum—specifically for households earning very low or extremely low percentages of area median family income—McClure emphasizes that traditional real estate development models fail to address this segment.
The Limitations of Supply-Side Interventions for Low-Income Housing
Efforts to alleviate affordability pressures through new construction often encounter severe economic hurdles. Programs like the Low-Income Housing Tax Credit (LIHTC), established in the 1980s to stimulate affordable housing development, now cost billions of dollars annually. However, due to the soaring costs of construction labor, land, and financing, developers cannot mathematically build units that rent for $500 to $700 a month—the level required by extremely low-income households—while maintaining a viable risk-adjusted return.
Consequently, most LIHTC properties deliver units targeting middle-income renters at $1,200 to $1,400 per month. Research indicates that new tax-credit units frequently displace market-rate construction, meaning that for every 100 subsidized units built, a significant percentage of privately financed market-rate units are never built. This dynamic adds supply to a middle-income market segment that may already be saturated while leaving the core affordability crisis for low-income households unresolved.
Given that building new units is not a cost-effective mechanism for reaching the poorest renters, McClure advocates for demand-side solutions. Programs like the Housing Choice Voucher initiative direct financial assistance straight to low-income households, allowing them to pay a capped percentage of their income toward rent while the program covers the remainder. Because millions of vacant or existing units already stand ready across the country, expanding direct rental assistance allows the market to utilize current housing stock efficiently without the massive fiscal outlays and displacement effects associated with overbuilding mid-tier apartments.
As real estate markets navigate fluctuating interest rates, shifting concession trends, and ongoing affordability debates, the research serves as a reminder that housing cost pressures are deeply intertwined with broader economic factors, including wealth distribution, wage stagnation, and income inequality. While the debate over housing supply will undoubtedly continue among developers, investors, and policymakers, examining the underlying data offers a clearer view of the challenges facing the American housing landscape.
