The long sad housing shortage may not exist after all. Rather, there is a lack of cheap rents and affordable homes, according to a new study.
A peer-reviewed study published in April in an academic journal Debate on housing policy, found that between 2000 and 2020, the US had a surplus of 3.3 million homes, contradicting the conventional wisdom that the nation faces a housing shortage.
“We’re kind of off the mark in our analysis, and that’s partly because we’re taking this longer-term perspective,” says Alex Schwartz, one of the study’s authors and head of the master’s program in urban policy at the New School. Luck.
The study looked at how fast the housing stock grew between the first two decades of the 2000s and compared that to the number of new households created during that time period. Schwartz and his research partner Kirk McClure, professor emeritus of urban planning at the University of Kansas, argue that many current studies that examine housing stock — which find that there is a national shortage — don’t go far enough back in time and therefore miss a large number of homes, which were built during the housing boom that lasted from 2000 to 2007.
“The housing bubble we experienced was a lot of price growth, but also a lot of production growth,” says McClure Luck.
The collapse of this previously booming real estate market triggered the Great Recession. The study also included the subsequent recovery from the Great Recession that lasted from 2012 to 2020, the year of the pandemic.
Capturing such a long time frame ensures that the research doesn’t overreact to short-term fluctuations in the market, McClure and Schwartz say. “We massively overbuilt the number of housing units we needed, and we’re still here in 2024 trying to absorb this massive housing redevelopment,” McClure said.
From 2000 to 2010, the US had a surplus of 4.6 million housing units, while in the following decade it was 1.3 million short of what population growth would have required. Together, this represents a surplus of 3.3 million households from 2000 to 2020.
The findings contrast with a body of research that points to a widespread shortage of new homes under construction. Earlier this month, housing website Zillow released an analysis that showed a housing deficit of 4.5 million new homes in 2022. While a more recent survey from Realtor.com estimated that 2.5 million homes were missing between 2012 and 2023.
However, these studies prefer to measure new home construction, while McClure and Schwartz look at vacant homes. That in itself is a complicating factor. As the two cite in their article, the physical condition of vacant homes is not entirely known. Some apartments may be empty because a stubborn landlord refuses to lower the rent; others because they serve as a vacation home for an affluent family, while some may be completely dilapidated and therefore uninhabitable – doing little to solve the housing crisis.
Surplus housing that keeps paying off many
But the new finding about the overall level of housing supply, which Schwartz said came as a surprise, offers some nuance to one of the main problems in the housing market.
“The problem is not so much an overall housing shortage as it is a mismatch between housing costs and household incomes,” Schwartz said. “Particularly among the lowest-income households, where there really is a mismatch between what they can afford and the number of units that are affordable.”
After this study, economists might debate the level of housing supply in the US, but the main issue seems to remain the same: affordability.
The researchers found a lack of affordable housing for low- and very-low-income families. Low-income families were defined as families with incomes between 30% and 60% of the market median, while very low-income families were those making less than 30% of the median — roughly equivalent to the poverty line, according to the paper.
McClure tries to distinguish between households making around $45,000 a year, which can be on a tight budget, and those making less than $22,000, which are the poorest in the US. they found an average shortfall of about 7,700 units, which the study found the poorest households with incomes under $22,000 could afford.
For those households who need government assistance to find housing, the absolute highest amount they can afford to pay for rent is $550. The construction of new houses and apartment buildings cannot solve the shortage of the absolute poorest. McClure explains that no private developer can build a new house or apartment that is within the price range of the poorest of the poor. “Even if you could build a unit for $0, there is absolutely no way a private developer could build a unit at that level.” [$550] price and survive,” says McClure. “Just property taxes, insurance and utility costs are north of that number.”
So the answer is to help them afford affordable housing. McClure and Schwartz recommend offering more Section 8 housing choice vouchers that subsidize rent payments.
“In many cases, it is best to use existing stock rather than paying the very high amounts required to add stock to an already large market,” the paper said. “Helping low-income households rent existing units is far less expensive than building deeply subsidized rental units 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 housing. Cities and towns should try to build a “wider range of housing types,” such as smaller units or higher-density housing, according to Schwartz.
The reason new housing inventory will need to be built, even if there is a surplus, is because rents and home prices cannot be expected to fall on their own. “It’s very unlikely that existing households would just lower their sales price on their own unless it was required for some reason,” Schwartz said.
Building more apartments is also seen as an effective way to reduce rents. A key piece of research from NYU’s Furman Center found that building more homes actually lowers rents.
New construction often raises concerns about gentrification; that existing residents will be priced out of luxury new apartments in previously affordable neighborhoods. Furman Center research says that the law of supply and demand also applies to the housing market.
A much-cited 2016 example in Auckland, New Zealand found that when about three-quarters of the city was rezoned to allow for denser housing, housing supply increased by 4%. According to a May 2023 working paper, rents for three-bedroom apartments have fallen between 26% and 33% compared to similar areas.
Other studies have found that the effect of new housing is usually not as pronounced as the Auckland example. More often than not, overall rents still go up when new housing is built, but not just as fast how else would they do it.
McClure disagrees with this research, but notes that it does not apply to the poorest of the poor. “Alex and I don’t want to drop the rent from $2,000 to $1,800 — that small difference isn’t enough,” McClure says. “We’re really trying to find ways to rent apartments to people who can’t afford more than $500 a month.”