For years, the prevailing consensus among real estate investors, policymakers, and economists has been straightforward: the United States is millions of units short of the housing it needs, and the only viable solution to skyrocketing costs is to build more. This narrative has driven urban planning policies, fueled portfolio allocations, and dominated economic headlines.
However, groundbreaking research by University of Kansas Professor Emeritus Kirk McClure and New School Professor Alex Schwartz challenges this foundational assumption. By analyzing two decades of decennial census data spanning from 2000 to 2020, McClure and Schwartz concluded that the vast majority of U.S. housing markets actually possess sufficient total housing stock. Their findings suggest that the affordability crisis is driven less by a literal physical shortage of units and more by a complex mismatch between lower household incomes and higher market prices.
Main Facts: Redefining the National Housing Debate
The core revelation of the McClure-Schwartz study turns conventional real estate wisdom on its head:
- Housing Stock Outpaced Growth: Between 2000 and 2020, the U.S. population grew by roughly 17.8%, while household formation grew by 20.3%. Crucially, the total housing inventory grew even faster, expanding by 21.2%.
- Geographic Granularity: When examining over 900 metropolitan and micropolitan markets down to the county level, McClure and Schwartz found that only 19 markets actually experienced a true housing shortage—defined as housing production failing to keep pace with household formation.
- The Starting Point Matters: Much of the conventional narrative regarding a multi-million-unit shortage stems from studies—such as those by Freddie Mac—that utilize 2010 as a baseline. Coming immediately after the Great Financial Crisis, 2010 captured a severe construction lull while ignoring a massive pre-crash housing glut.
- Affordability vs. Availability: The researchers argue that skyrocketing home prices and rents are not the result of a physical lack of roof-and-wall units, but rather the bidding power of high-wealth, high-income households pulling up asset values, coupled with the stagnant purchasing power of lower-income wage earners.
Chronology: How the Research Unfolded
The genesis of the study began with an ordinary working hypothesis among researchers. When McClure and Schwartz initially partnered, they fully expected to confirm the pervasive shortage narrative.
The Initial Hunt for Hot-Market Shortages
Initially, McClure and Schwartz sought to quantify the severity of shortages in historically "hot" markets—such as coastal hubs like New York, Boston, Washington, and San Francisco on the East and West Coasts. They anticipated finding acute supply deficits translating directly into severe affordability burdens.
However, simply put, the numbers refused to cooperate with their hypothesis. Unable to find widespread statistical evidence of a structural unit deficit across major markets, the researchers grew deeply skeptical of their own initial assumptions. They subjected their data to rigorous peer review and pushed it through various validation tests to guard against aggregation bias.
Analyzing the Decennial Census (2000–2020)
To eliminate distortions caused by lagging rural areas or population-shedding metros (such as New Orleans), McClure and Schwartz tracked every county within metropolitan and micropolitan statistical areas from 2000 to 2020.
By filtering out roughly 140 declining areas, they analyzed the remaining ~760 metropolitan markets. To their surprise, only 19 showed evidence that housing production had genuinely lagged behind household formation over the two-decade span.
Supporting Data: Households, Production, and the 2010 Baseline Flaw
Understanding housing demand requires distinguishing between raw population growth and household formation.
Population vs. Household Formation
- Population: Measures raw human count (births and immigration minus deaths and emigration).
- Household Formation: Represents a discrete unit of demand (e.g., when two children move out of their parents’ home to rent separate apartments, one household multiplies into three).
Because housing stock grew faster than household formation—which in turn grew faster than population—basic economic logic dictates that the nation produced more units of supply than it generated units of demand between 2000 and 2020.
The 2010 Baseline Debate
Why do major institutions like Freddie Mac, the National Association of Realtors (NAR), and various banking groups claim a multi-million-unit deficit? McClure points directly to methodological baselines:
- The Freddie Mac Model: Freddie Mac’s landmark shortage studies utilized 2010 as their starting point.
- The Overhang Effect: Between 2000 and 2010, the U.S. overbuilt significantly, producing roughly 140 housing units for every 100 newly formed households. This created a multi-million-unit surplus (or overhang) entering 2010.
- The Distorted Decade: By starting in 2010—right at the trough of the Great Recession when construction temporarily ground to a halt—analysts captured the recovery period while erasing the massive inventory cushion that preceded it. Evaluated across the entire 2000–2020 window, that oversupply smooths out, neutralizing the shortage thesis.
Official Responses and Alternative Economic Perspectives
While McClure’s findings challenge institutions like Freddie Mac and Moody’s, other economic models offer nuanced counter-arguments that deserve examination.
The Moody’s Cohort Analysis
Moody’s analytics approach the housing shortage through generational cohort analysis. They argue that younger generations—particularly Gen Z—are forming households at rates significantly lower than historical averages for their age brackets.
While McClure agrees that Gen Z household formation is depressed, he diverges sharply on the cause. Moody’s models often attribute this drop directly to a lack of housing units. McClure, conversely, points to structural socio-economic hurdles: heavy student loan debt, expensive higher education, high automobile financing costs, and stringent banking underwriting rules (such as the 28/36 debt-to-income ratios). Without steady, high-quality jobs and liquid savings for a lease deposit or down payment, building more physical units does little to immediately pull a young adult out of their parents’ basement.
The Problem with Middle-Market Construction
A recurring policy prescription is the expansion of programs like the Low-Income Housing Tax Credit (LIHTC). However, McClure notes a troubling economic reality:
- Displacement Effects: Research indicates that LIHTC-funded units exhibit roughly an 85% displacement rate. For every 100 tax-credit units built, 85 fewer market-rate units are constructed by the private sector.
- Cost Overruns: With current labor, land, and material costs, developers cannot build units that rent for $500 to $700 a month—the actual price point needed by extremely low-income households—while securing a viable risk-adjusted return. Consequently, LIHTC units typically debut at $1,200 to $1,400 a month, serving middle-income households in a market segment that may already be saturated.
Implications: Rethinking Housing Policy and Federal Spending
If the United States does not suffer from a universal, physical shortage of four walls and a roof, current housing policy is pointed in the wrong direction. Pouring billions of dollars into uncoordinated, supply-side subsidies may create oversupplied middle-market apartments while leaving vulnerable populations behind.
Moving Beyond "Hammers and Nails"
McClure argues that federal housing investments should pivot from aggressive production subsidies to direct consumer-side financial assistance:
- Expand Housing Choice Vouchers: Programs like Section 8 vouchers put purchasing power directly into the hands of low-income renters, allowing them to utilize the existing housing stock efficiently. Currently, these programs are severely underfunded, servicing only a fraction of eligible households who must endure years-long waiting lists.
- First-Time Homebuyer Support: Rather than subsidizing the construction of more luxury or mid-tier multifamily developments, federal policy should focus on tools that assist low-income, first-time homebuyers—such as down payment assistance, loan insurance to smooth out irregular income shocks, and lowering loan-to-value barriers.
- Re-evaluating Tax Exemptions: McClure cautions against expanding capital gains tax exemptions on primary residences (currently set at $500,000 for married couples). He argues that while such tax benefits provide vital wealth-building vehicles for working-class families, shielding high-six-figure earners from capital gains taxes only exacerbates the wealth divergence of a "K-shaped economy."
Conclusion
The debate initiated by McClure and Schwartz forces a painful but necessary reckoning within the real estate and political spheres. If the housing crisis is fundamentally a problem of income inequality, wealth concentration, and economic access rather than a simple arithmetic deficit of physical structures, then building our way out of the crisis will remain an elusive, expensive, and ultimately misdirected endeavor.
