The much lamented housing shortage may not exist after all. Instead, there is a shortage of cheap rent and affordable housing, according to a new study.
The peer-reviewed study, published in April in the academic journal Debate on housing policy, found that between 2000 and 2020, the United States had a surplus of 3.3 million housing units, defying the conventional wisdom that the country faces a housing shortage.
“We’re kind of an outlier in our analysis, and that’s partly because we take this longer-term perspective,” says Alex Schwartz, one of the study’s authors and director of the master’s program in urban politics at the New School. Fortune.
The study looked at 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, say many current studies examining housing stock — which conclude a national shortage — don’t go back far enough in time and, therefore, overlooking the large number of homes that were built during the housing boom that spanned from 2000 to 2007.
“The housing bubble that we experienced resulted in strong price growth, but also strong output growth,” says McClure. Fortune.
The collapse of this once-booming housing 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 period of time ensures that the research doesn’t overreact to short-term ups and downs in the market, McClure and Schwartz say. “We massively overbuilt the amount of housing that we needed, and we’re still here in 2024 trying to absorb that massive overbuilding of housing,” McClure said.
From 2000 to 2010, the United States had a surplus of 4.6 million housing units, while over the next decade there was a shortage of 1.3 million fewer units. than would be required by population growth. In total, this gives a surplus of 3.3 million housing units between 2000 and 2020.
The findings contrast with a plethora of research that points to a widespread shortage of new housing being built. Earlier this month, housing website Zillow released an analysis showing that in 2022 there was a housing deficit of 4.5 million new homes. While a more recent survey from Realtor.com estimates that between 2012 and 2023 there would be a shortage of 2.5 million housing units.
However, these studies prefer to measure new housing construction, while McClure and Schwartz focus on vacant housing. This in itself is a complicating factor. As the two men point out in their article, the physical condition of vacant housing is not entirely known. Some apartments may remain empty because a stubborn landlord refuses to lower the rent; others because they serve as a vacation home for a wealthy family, while some may be entirely dilapidated and therefore uninhabitable, which does little to solve the housing crisis.
A housing surplus that remains undervalued a lot
But the new finding about overall housing supply levels, which Schwartz said was a surprise, brings some nuance to one of the housing market’s biggest problems.
“The problem is not so much the overall housing deficit, but rather the mismatch between the cost of housing 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 affordable homes.
After this study, economists might debate the level of available housing supply in the United States, but the central issue appears to remain the same: affordability.
Researchers found a shortage of affordable housing for low- and very-low-income families. Low-income families were defined as those with incomes 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, or roughly nearly the equivalent of the poverty line, according to the paper.
McClure attempts to distinguish between households earning around $45,000 a year, which might be on a tight budget, and those earning less than $22,000, which are the poorest in the United States. When assessing rental markets in 381 metropolitan areas and 526 small towns, the study found there was an average housing shortage of about 7,700 as the poorest households, earning less than $22,000, could afford, according to the study.
For households who need government assistance to find housing, the highest rent they could afford is $550. Building new houses and apartment buildings cannot address the shortage of the poorest. McClure explains that no private developer can build a new house or apartment that would be affordable 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 for that price ($550) and survive,” McClure says. “Only property taxes, insurance and utility costs are north of that figure. »
The solution therefore consists of helping them obtain available accommodation. McClure and Schwartz recommend offering more Section 8 housing vouchers that subsidize rent payments.
“In many circumstances it is better to use existing inventory than to pay the very large sums required to add inventory to an already abundant market,” the paper read. “Helping low-income households rent existing housing is much less expensive than building heavily subsidized housing with affordable rents for low-income households. »
Building new homes can reduce 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 wider range of housing types,” according to Schwartz, such as smaller units or higher-density housing.
The reason new housing stocks will need to be built, even in times of surplus, is that rents and housing prices cannot fall on their own. “It’s very unlikely that existing households will simply reduce their sales price unless they are forced to for some reason,” Schwartz said.
Building more housing is also seen as an effective way to reduce rents. A seminal study from NYU’s Furman Center found that building more housing actually lowers rents.
New housing developments often spark fears of gentrification; that existing residents will be priced out of new luxury apartments in formerly affordable neighborhoods. Furman Center research asserts that the law of supply and demand also applies to the real estate market.
A widely cited example from 2016 in Auckland, New Zealand, found that when around three-quarters of the city was rezoned to allow denser housing construction, housing supply increased by 4%. At the same time, rents for three-bedroom apartments fell 26% to 33% compared to similar areas, according to a May 2023 discussion paper.
Other studies have shown that the effect of new housing is generally not as strong as the Auckland example. Most often, overall rents still increase when new housing is built, but not as fast as they would have done otherwise.
McClure does not disagree with this research, but notes that it is not aimed at the poorest of the poor. “Alex and I are not looking to reduce rents from $2,000 to $1,800 – that small difference is not enough,” McClure says. “We’re really trying to find ways to rent apartments to people who can’t afford more than $500 a month. »