For years, the prevailing narrative across the American real estate landscape has been direct and seemingly absolute: the United States is millions of homes short, and the single solution to skyrocketing housing costs is to build more units. It is a belief held by institutional investors, policymakers, and industry experts alike, frequently cited to underwrite major deals and guide portfolios. However, recent empirical research paints a radically different picture, challenging the foundational assumptions driving the modern housing market.
In a recent episode of the On the Market podcast, host Dave Meyer sat down with Dr. Kirk McClure, professor emeritus at the University of Kansas and co-author of a landmark study examining household growth and housing production across U.S. markets from 2000 to 2020. Alongside his colleague Alex Schwartz, McClure analyzed national data and arrived at a surprising conclusion: most places across the United States actually had enough total housing. This finding calls into question the widespread housing shortage narrative and suggests that the nation’s affordability crisis stems less from a sheer lack of physical structures and more from broader economic disconnects, including lower incomes meeting escalating prices.
Questioning the Baseline: What the Census Data Shows
When McClure and Schwartz embarked on their research, they initially operated under the assumption that the prevailing shortage narrative was correct. Their preliminary hypothesis anticipated finding acute shortages 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. Yet, when they attempted to quantify these localized shortages and trace their translation into affordability metrics, the data simply did not support their expectations.
Turning to decennial census data covering the period from 2000 to 2020, the researchers evaluated population growth, household formation, and housing stock expansion. Over those two decades, the U.S. population grew by approximately 17.8 percent. More notably, households grew at a faster clip of 20.3 percent. McClure explains that the only mechanism by which households can outpace overall population growth is the presence of an ample housing inventory, drawing down vacant units when new construction lags.
However, the housing stock itself grew even faster, expanding by 21.2 percent between 2000 and 2020. This meant that the total national housing supply grew faster than household formation, which in turn grew faster than population growth. Such a trajectory sits uncomfortably alongside the widely accepted narrative of a sweeping national housing shortage.
To ensure their findings were not skewed by aggregation bias—the possibility that declining population centers and static housing stocks in lagging regions were masking localized shortages—the researchers broke down the data county by county across the nation’s roughly 900 metropolitan and micropolitan markets. Subtracting the approximately 140 declining areas, such as the New Orleans market and various shrinking micropolitan regions, they tracked the remaining 760-plus growing metropolitan areas. Out of that entire group, only 19 markets actually experienced a traditional shortage defined by housing production failing to keep pace with household formation.
Examining the Starting Point and Differing Methodologies
The unexpected findings naturally invited skepticism and pushed back against long-held industry standards. To validate their conclusions, McClure and Schwartz scrutinized their choice of a starting point. They selected the year 2000, arguing it followed a decade of economically balanced growth characterized by strong employment, healthy wage growth, and closely tracking metrics for population, household formation, and housing production.
This methodological choice diverges sharply from studies conducted by organizations like Freddie Mac, which frequently cite a severe national shortage starting from a baseline year of 2010. McClure notes that 2010 sits directly in the shadow of the Great Recession and the collapse of the prior housing bubble, representing a period marked by a massive overhang of vacant inventory. During the preceding decade from 2000 to 2010, the U.S. built upwards of 140 housing units for every 100 households formed, creating a substantial glut. Consequently, measuring exclusively from 2010 forward overlooks this preceding oversupply, skewing the resulting calculations.
Other prominent analyses, such as those from Moody’s analytics teams, have approached the issue by evaluating historical rates of household formation across different demographic cohorts. These studies suggest that younger generations, particularly Gen Z, exhibit lower household formation rates than historical norms because soaring housing costs and economic pressures keep them from moving out or buying homes. While McClure agrees that affordability heavily impacts young adults, he contends that attributing this diminished household formation rate solely to a lack of physical housing units oversimplifies the problem. Younger buyers face compounding financial hurdles, including steep student loan debt, high automobile payments, tight banking qualification rules, and difficulties securing steady employment capable of supporting traditional mortgages or hefty lease deposits.
Affordability, the "K" Economy, and the Rental Market
If a widespread physical shortage does not adequately explain the current market, economists and policy analysts are left to reconcile why housing and rental costs remain stubbornly high. Recent follow-up research conducted by Federal Reserve economists sheds light on the mechanics driving owner-occupied home prices. By tracking the Case-Shiller home price index alongside median household income, analysts observed that prices and incomes tracked closely together through the 1990s before breaking away during the late-90s bubble.
Rather than a simple lack of units, modern home prices are heavily influenced by aggregate dollars within a bifurcated economy. A segment of the population has accumulated substantial wealth through the stock market and other investments. Because primary residences enjoy uniquely generous tax treatment under the federal code, high-income, high-wealth households actively bid up the cost of owner-occupied housing, pulling the median price index upward alongside aggregate wealth.
The rental market presents a parallel yet distinct set of dynamics. Rents have risen faster than median renter incomes, largely because households priced out of homeownership remain trapped in the rental pool, driving up demand. Furthermore, data indicates that the mismatch is most severe at the lowest end of the economic spectrum. While builders and government programs focus heavily on creating middle-market multifamily units, there is a pronounced deficit of units affordable to extremely low-income households earning a fraction of the area median family income.
Despite this localized pressure, McClure argues that traditional government responses—such as pouring federal dollars into building more subsidized middle-income units via programs like the Low-Income Housing Tax Credit (LIHTC)—are often inefficient. Research suggests that new tax-credit units frequently displace market-rate construction while failing to reach the poorest renters who need assistance the most. Instead, McClure advocates for direct consumer-based interventions, such as expanding Housing Choice Vouchers. By putting financial assistance directly into the hands of low-income households to consume existing housing inventory, federal funds can achieve significantly greater impact than attempting to build new units in segments of the market that may already be saturated.
As the real estate sector navigates fluctuating interest rates, shifting consumer demand, and ongoing debates over housing policy, the research serves as a reminder that housing affordability is a multifaceted challenge. Addressing it requires looking beyond broad supply-side generalizations and carefully examining the complex interplay of incomes, wealth distribution, and existing market inventory.