The long lamented housing shortage may not exist after all. Instead, there’s a shortage of cheap rents and affordable homes, according to a new study.
The peer-reviewed study, published in April in the academic journal Debate on housing policies, found that between 2000 and 2020, the US had a surplus of 3.3 million homes – challenging the conventional wisdom that the nation is facing a housing shortage.
“We’re kind of unique in our analysis, and in part that’s because we’re taking this long-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. Wealth.
The study looked at how fast housing stock grew between the first two decades of the 2000s and compared it to the number of new households formed 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 examining the housing stock — which find there is a national shortage — don’t go back far enough and therefore overlook the large number of homes that were built during the housing boom that spanned from 2000 to 2007.
“The housing bubble that we experienced was a huge increase in prices, but also a huge increase in production,” says McClure. Wealth.
The collapse of that once prosperous 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 research doesn’t overreact to short-term market ups and downs, McClure and Schwartz argue. “We massively overbuilt the number of housing units we needed and we’re still here in 2024 trying to absorb that massive overbuilding in housing,” McClure said.
From 2000 to 2010 the US had a surplus of 4.6 million housing units, while in the following decade there was a shortfall of 1.3 million units less than population growth would require. All together, this amounts to a surplus of 3.3 million homes from 2000 to 2020.
The findings contrast with a wealth of research that points to a widespread lack of new homes being built. 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 study by Realtor.com estimated that from 2012 to 2023 there was a shortage of 2.5 million homes.
However, these studies prefer to measure new home construction, while McClure and Schwartz look at vacant homes. This in itself is a complicating factor. As the two cite in their paper, the physical condition of vacant houses is not fully known. Some apartments may sit empty because a stubborn landlord refuses to lower the rent; others because they serve as a holiday home for a wealthy family, while some may be completely dilapidated and therefore uninhabitable – doing little to solve the housing crisis.
A surplus of housing that still prices LOT
But the new finding about overall housing supply levels, which Schwartz says was a surprise, offers a hint of one of the main problems in the housing market.
“The issue is not so much a total lack of housing units, but rather a mismatch between the cost of housing and household income,” Schwartz said. “More particularly among lower-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 may debate the level of available housing supply in the US, but the core issue seems to remain the same: affordability.
The researchers found a shortage of housing that low- and very-low-income families could afford. Low-income households were defined as those making between 30% and 60% of the median in a given market, while very low-income households were those making less than 30% of the median—roughly equivalent to the poverty line, according to the letter.
McClure tries to distinguish between households making about $45,000 a year, which may be on a tight budget, and those making less than $22,000, which are the poorest in the U.S. When evaluating rental markets in 381 metropolitan areas and 526 small towns, research. found there was an average shortfall of about 7,700 units that the poorest households, earning under $22,000, could afford, according to the study.
For those families who require government assistance to find housing, the absolute highest they can afford to pay rent is $550. Building new homes and apartment buildings cannot address the shortage for the absolute poorest. McClure explains that no private developer can build a new house or apartment that would be within the price range for the poorest of the poor. “Even if you could build the unit for $0, there is absolutely no way a private developer could build a unit at that [$550] price and survive,” says McClure. “Only property taxes, insurance and utility costs are north of that number.”
So the answer is to help them afford the housing that is available. McClure and Schwartz recommend offering more Section 8 housing choice vouchers that subsidize rent payments.
“In many circumstances, it is better to use existing stock rather than pay the very large sums required to add stock to an already abundant market,” the paper said. “Helping low-income families rent existing units is far less expensive than building deeply subsidized units at affordable rents for low-income families.”
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 look to build “a broader array of housing types,” according to Schwartz, such as smaller units or higher-density housing.
The reason new housing inventory will need to be built, even during a glut, is because rents and home prices cannot be expected to fall on their own. “It’s highly unlikely to think that existing households will just lower their sales price unless they’re asked for some reason,” Schwartz said.
Building more housing is also seen as an effective way to reduce rents. An important piece of research from NYU’s Furman Center found that building more homes actually lowers rents.
New housing developments often raise fears of gentrification; that existing residents will benefit from beautiful new apartments in formerly affordable neighborhoods. Furman Center research claims that the law of supply and demand holds true in the housing market as well.
A widely cited example from 2016 in Auckland, New Zealand, found that when about three-quarters of the city was rezoned to allow for denser housing developments, housing supply increased by 4%. Meanwhile, rents for three-bedroom apartments fell 26% to 33% compared to similar areas, according to a working paper from May 2023.
Other studies have found that the effect of new housing is usually not as sharp as the Auckland example. More often than not, overall rents still go up when new housing is built, but not how fast as they would otherwise.
McClure disagrees with that research, but notes that it doesn’t address the poorest of the poor. “Alex and I are not looking to drop rents from $2,000 to $1,800 — that small change is not enough,” McClure says. “We’re really trying to find ways to rent apartments for people who can’t afford more than $500 a month.”