The long-complained housing shortage may not exist after all. Rather, there is a shortage of cheap rents and affordable housing, according to a new study.
The peer-reviewed study, published in April in the scientific journal Debate on housing policy, found that the US had a surplus of 3.3 million homes between 2000 and 2020 – contradicting the conventional view that the country faces a housing shortage.
“We’re kind of an outlier in our analysis, and part of that is because we’re looking from this longer-term perspective,” says Alex Schwartz, one of the study’s authors and chair of the master’s program in urban policy at the New School. Fortune.
The study examined how quickly housing stock grew between the first two decades of the 2000s and compared it to the number of new households formed during that period. Schwartz and his research partner Kirk McClure, professor emeritus of urban planning at the University of Kansas, argue that many current studies of housing stock — which show there is a national shortage — do not go back far enough in time and therefore ignore the large number of homes which was built during the housing boom that stretched from 2000 to 2007.
“The housing bubble we experienced was a big price increase, but also a big production growth,” says McClure Fortune.
The collapse of the previously prosperous real estate market caused the Great Recession. The study also included the subsequent recovery from the Great Recession, which lasted from 2012 to 2020, the year of the pandemic.
Capturing such a long period ensures that the research doesn’t overreact to the short-term ups and downs of the market, McClure and Schwartz argue. “We vastly overbuilt the amount of housing we needed, and we’re still here in 2024 trying to accommodate that massive overbuild of housing,” McClure said.
From 2000 to 2010, the US had a surplus of 4.6 million homes, while in the following decade there was a deficit of 1.3 million fewer homes than population growth would require. All together, this amounts to a surplus of 3.3 million homes between 2000 and 2020.
The findings contrast with a plethora of research pointing to a widespread shortage of new homes under construction. Earlier this month, housing website Zillow published an analysis showing that there would be a housing shortage of 4.5 million new homes by 2022. While a more recent study from Realtor.com estimated that there was a shortage of 2.5 million homes between 2012 and 2023.
However, these studies prefer to measure the construction of new homes, while McClure and Schwartz look at vacant homes. That in itself is a complicating factor. As the two point out in their article, the physical condition of the vacant homes is not fully known. Some apartments may be empty because a stubborn landlord refuses to lower the rent; others because they serve as a holiday home for an affluent family, while some may be completely dilapidated and therefore uninhabitable – which does little to solve the housing crisis.
A housing surplus that is still being priced out a lot of
But the new finding on overall housing supply, which Schwartz said was a surprise, offers some nuance to one of the biggest problems in the housing market.
“The problem is not so much about the overall shortage of housing, but rather about the mismatch between the cost of housing and household incomes,” Schwartz said. “Especially among the lowest-income households, where there is a real disconnect between what they can afford and the number of affordable units.”
After this study, economists might debate the available housing supply in the US, but the core problem seems to remain the same: affordability.
The researchers discovered a shortage of housing that families with low and very low incomes could afford. Low-income families were defined as those earning between 30% and 60% of the median in a given market, while very low-income families were those earning less than 30% of the median – roughly equal to the poverty line , according to the newspaper.
McClure tries to distinguish between households earning about $45,000 a year, which may be on a tight budget, and households earning less than $22,000, which are the poorest in the US. Assessing rental markets in 381 metropolitan areas and 526 small towns, the study found that there was an average shortage of about 7,700 units that the very poorest households, those earning less than $22,000, could afford, according to the study.
For those households that need government assistance to find housing, the absolute most they can afford to pay for rent is $550. Building new houses and apartment buildings cannot address the shortage for the very poorest. McClure explains that no private developer can build a new house or apartment within the price range for the very poorest. “Even if you could build the unit for $0, there is absolutely no way a private developer could build a unit for that [$550] prices and survival,” says McClure. “Only property taxes, insurance and utility costs are north of that number.”
So the answer is to help them afford the available housing. McClure and Schwartz recommend offering more Section 8 Housing Choice Vouchers that subsidize rental payments.
“In many circumstances it is best to tap existing stock rather than pay the very large sums required to add stock to an already ample market,” the paper said. “Helping low-income households rent existing homes is much cheaper than building heavily subsidized homes with rents that are affordable to low-income households.”
Building new homes can lower prices in the long run
But that doesn’t mean McClure and Schwartz are against building new homes. Cities and towns should try to build “a broader range of housing types,” such as smaller units or higher-density housing, according to Schwartz.
The reason new housing needs to be built, even if there is a surplus, is because rents and home prices cannot be expected to fall on their own. “It is very unlikely that existing households would just lower their sales price on their own unless they were forced to do so for some reason,” Schwartz said.
Building more homes is also seen as an effective way to reduce rents. A groundbreaking study from NYU’s Furman Center shows that building more homes actually lowers rents.
New housing developments often raise fears of gentrification; that existing residents will be priced out of expensive new apartments in previously affordable neighborhoods. The Furman Center’s research shows that the law of supply and demand applies to the housing market as well.
A widely cited example from 2016 in Auckland, New Zealand, showed that when about three-quarters of the city was rezoned to allow for denser housing, housing supply increased by 4%. Meanwhile, rents for three-bedroom apartments fell 26% to 33% compared to comparable areas, according to a May 2023 working paper.
Other studies have shown that the effect of new homes is generally not as great as in the Auckland example. More often than not, overall rents still increase as new housing is built, but not so fast as they otherwise would have done.
McClure does not disagree with that research, but notes that it does not address the poorest of the poor. “Alex and I have no intention of lowering the rent from $2,000 to $1,800; that small difference is not enough,” says McClure. “We’re really trying to find ways to rent apartments to people who can’t afford more than $500 a month.”