For years, the prevailing narrative across the American real estate landscape has sounded a singular, urgent note: the United States is millions of homes short, and the only viable solution to skyrocketing housing costs is to build more units. It is a belief that has driven billions of dollars in real estate investments, shaped corporate portfolios, and dominated federal policy discussions. However, ground-breaking research from Kirk McClure and Alex Schwartz calls that foundational assumption entirely into question.
After conducting a comprehensive comparison of household growth and housing production across U.S. markets from 2000 to 2020, the researchers discovered that the vast majority of regions actually had sufficient total housing inventory. To unpack these surprising findings, host Dave Meyer welcomed Kirk McClure, professor emeritus at the University of Kansas and co-author of the study, to an episode of the On the Market podcast to discuss the data behind the headlines, how a shortage is defined, and why affordability may be driven less by a lack of physical units and more by a mismatch between lower incomes and higher prices.
Questioning the Status Quo
When McClure and his colleague Alex Schwartz initially set out to examine the issue, they operated under the assumption that the prevailing shortage narrative was entirely correct. They wanted to see if the housing shortage was similar across all geographic markets in the United States, working under the hypothesis that they would find the most acute shortages in traditionally hot markets along the East Coast—such as Boston, New York, Washington, and Miami—and the West Coast, including Seattle, San Francisco, Los Angeles, and San Diego.
However, after attempting to quantify the data and translate it into affordability metrics, the researchers simply could not find the expected deficits. Becoming deeply skeptical of their own work, they scrutinized their models and shared them with peers for pushback.
Looking at decennial census data from 2000 to 2020, the numbers revealed a surprising trajectory. The U.S. population grew by about 17.8%, while households grew at a faster rate of 20.3%. McClure notes that the only way households can outpace overall population growth is if there is an ample existing inventory of housing. Crucially, the housing stock itself grew even faster, increasing by 21.2% over the same two-decade period.
This meant housing stock grew faster than household formation, which in turn grew faster than total population growth. To McClure and Schwartz, these metrics were difficult to reconcile with the widespread narrative of a nationwide housing deficit.
To ensure their findings were not skewed by aggregation bias, the researchers analyzed every county and metropolitan market in the United States from 2000 to 2020. Out of roughly 900 metropolitan and micropolitan markets, they subtracted approximately 140 areas experiencing population decline. Out of the remaining roughly 760 metropolitan areas, only 19 actually experienced what could be defined in a traditional economic sense as a shortage—meaning housing production genuinely failed to keep pace with the rate of household formation.
Examining Start Dates and Economic Shocks
Explaining the mechanics of these metrics, Meyer notes that population growth is determined by births and immigration minus deaths and departures. Household formation, meanwhile, represents distinct units of demand for living space. For instance, if two children move out of their parents’ home into separate apartments, a single family household transforms into three distinct households, making household formation a more precise gauge of immediate housing demand than raw population figures.
Given that overall housing units grew faster than household demand between 2000 and 2020, the logical question is whether the nation started the millennium facing an underlying deficit that predated their research. McClure explains that choosing the year 2000 as a starting point was a deliberate methodological choice. The 1990s represented a decade of relatively balanced economic growth, with employment, wage growth, population, household formation, and housing unit construction all tracking closely together—the hallmark of a healthy, balanced market.
By contrast, McClure points out that other prominent studies, such as a widely cited analysis by Freddie Mac economists, utilized 2010 as a baseline. Coming immediately on the heels of the Great Financial Crisis and the collapse of the housing bubble, 2010 represented a period of deep market recovery. McClure argues that starting in 2010 led to an incorrect conclusion because the preceding decade had experienced a massive oversupply, with builders constructing in excess of 140 units for every 100 households formed between 2000 and 2010. While housing stock did grow slower than household formation from 2010 to 2020, that decade-long slowdown was merely absorbing a multi-million-unit overhang left over from the pre-crisis glut.
Other institutional analyses, such as those from Moody’s, have taken a nuanced cohort-based approach, tracking historical rates of household formation for younger generations like Gen Z. These studies suggest that if affordability matched the levels seen in the 1990s, younger generations would form households at higher rates. McClure agrees that affordability is severely constrained for younger demographics, but he attributes this less to a physical shortage of housing units and more to external financial pressures, such as heavy student loan debt, high vehicle payments, and tightened lending standards that make saving for a security deposit or down payment exceedingly difficult.
Affordability, Wealth, and Rental Markets
If a massive national housing shortage does not explain current market conditions, economists must look elsewhere to understand why housing affordability has plummeted and prices have soared. Recent follow-up research from Federal Reserve economists points toward aggregate wealth and income stratification as primary drivers of home prices.
Using the Case-Shiller home price index, researchers have historically compared price trajectories against median household incomes. While prices and median incomes tracked closely through the 1990s, the late-minute bubble and subsequent post-crisis recovery revealed that home prices track very closely with aggregate income and wealth among higher-earning segments of the population. Tax codes that generously incentivize primary homeownership have enabled high-income, high-wealth households to aggressively bid up property values.
The rental market presents a more complex picture. Rents have risen faster than median renter incomes, largely because households priced out of homeownership have been forced to remain renters, generating intense competition. Some housing advocates define a shortage specifically through this lens, pointing out that there are far more extremely low-income and very low-income households than there are units priced affordably for them—typically defined as $500 to $700 per month.
However, McClure cautions against reflexively responding to this disparity by using government funds to build more units. Pointing to programs like the Low-Income Housing Tax Credit (LIHTC)—which costs taxpayers billions annually—McClure notes that newly constructed tax credit units often rent for $1,200 to $1,400 a month, effectively serving middle-income households rather than the poorest populations. Research suggests that new tax credit units can displace standard market-rate construction by up to 85%, creating minimal net gains while failing to lower costs at the bottom of the market.
Instead, McClure advocates for direct rental assistance programs, such as Housing Choice Vouchers, which put purchasing power directly into the hands of low-income families so they can utilize existing rental stock more effectively rather than funding expensive new construction.
Looking Ahead
As the housing market navigates fluctuating interest rates and shifting buyer sentiment, McClure remains skeptical that federal policies focused purely on boosting production will resolve fundamental affordability challenges. He warns that overbuilding in the middle-income rental tier risks market saturation without helping the most vulnerable renters, while heavy capital gains tax exemptions on primary residences continue to disproportionately benefit wealthier homeowners.
Ultimately, McClure’s research suggests that policymakers and real estate professionals must shift their focus away from the blanket assumption of a physical unit shortage and instead examine how to make better use of existing housing stock while addressing broader economic inequities.