Homes Are Expensive. Building More Won’t Solve the Problem.

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Kirk McClure

Alex Schwartz

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About the authors: Kirk McClure is professor emeritus at the University of Kansas. Alex Schwartz is professor at the New School.

There is a growing, bipartisan consensus that the U.S. suffers from a housing shortage, and that this shortage is at the root of the nation’s housing-affordability crisis. This argument can be found in the popular press , academic literature , industry reports , state and local housing plans , and in White House statements . As the Biden administration put it in a May 2022 housing plan , “The best thing we can do to ease the burden of housing costs is to boost the supply of quality housing.”

The U.S. has long faced a severe housing-affordability crisis . About one-half of all renters and about one-fifth of all homeowners spend more than 30% of their income on housing expenses. More than 1.25 million people spent one or more nights in a homeless shelter during the course of a recent year. However, as real as the housing crisis is, it isn’t caused by a housing shortage. The nation’s overall supply of housing is adequate, and there is little evidence to show that rising housing costs are driven by a shortage of housing.

True, some measures indicate a housing shortage. Freddie Mac , for example, points out that the growth in housing units has lagged behind the growth in households over the past decade, causing vacancy rates to drop below customary levels.

A longer-term perspective, however, shows that America isn’t suffering from a housing shortage. Housing production has lagged behind household growth since 2010, but this doesn’t account for the massive overhang of housing produced in the previous decade. Fueled by the housing bubble of 2000-07, 160 homes were added to the stock for every 100 households formed during the aughts, our analysis of Census Bureau data shows. This level of production created a huge surplus of housing, which has yet to be fully absorbed.

Put differently, from 2000-21, the nation grew by 18.5 million households. To maintain an adequate inventory of vacant housing, which historically would be 9.3% of the total, the housing stock needed to expand by 20.2 million units. Instead, it grew by 23.7 million housing units, producing a surplus of 3.5 million units.

Nationally, there is no shortage of housing, and adding to the surplus won’t resolve the nation’s affordability problems. Nor is there a shortage in most metropolitan areas. Of the 707 growing metro markets, only 26 have shortages of housing, with household growth exceeding housing-unit growth. These markets tend to be small, containing less than 1% of the nation’s population. Two-thirds of the growing markets had a surplus of housing, meaning the increase in units from 2000-21 exceeded the growth of households by at least 10 percentage points. These growing markets with surpluses house about 72% of the U.S. population.

In the remaining growing markets, housing supply and demand are in balance, with the growth of units equaling the growth of households or exceeding it by up to 10%. The largest 15 markets, all with populations of four million or more, added more units than households. The New York area was the largest, with a surplus of over a quarter-million units. The Phoenix area was the smallest, at just over 20,000 units.

The belief that there is a housing shortage is correctly motivated by concern over the housing-affordability problems that confront so many households. But census data show that these housing-affordability problems largely reflect a mismatch between household incomes and housing prices. Here, prices refer to housing prices in the market as a whole, not just the prices of new-to-the-market homes, which fluctuate widely with the pace of housing production.

Housing-affordability problems for the population as a whole aren’t related to housing shortages or low vacancy rates. Rather, they are driven by high overall housing prices and low household incomes. Geographic variations in housing prices and rents show no significant relationship with differences in housing supply or vacancy rates. The housing markets with the greatest affordability problems are those with the greatest job growth and the highest wage levels. Shortages of housing don’t drive affordability problems as much as strong job growth and high incomes. This is what pulls up housing prices.

It’s conceivable that a huge increase in supply would eventually lead to lower prices. But that would require a major intervention in the market, and the case for it is weak. U.S. housing policy should focus less on adding to the already ample stock of housing and more on raising the incomes of low-income households and giving them access to good-quality housing in safe neighborhoods. We know how to do this. Raising minimum wages to the living-wage level will help the working poor afford housing. Zoning reform can encourage the production of multifamily housing, accessory apartments, and other less-expensive housing formats. Subsidized construction should be targeted for supportive housing and for affordable rental housing in places with actual housing shortages.

The most effective housing assistance for low-income households is not found in building more units but in helping low-income households afford the units that already exist through housing vouchers for renter households and down-payment assistance for home buyers. The U.S. cannot build itself out of its housing crisis.

Guest commentaries like this one are written by authors outside the Barron’s and MarketWatch newsroom. They reflect the perspective and opinions of the authors. Submit commentary proposals and other feedback to  ideas@barrons.com .

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Real Estate. Other Voices. COMMENTARY. By. Kirk McClure. Alex Schwartz. Order Reprints. Print Article. Illustration by Sebastien Thibault. Text size. About the authors: Kirk McClure is professor emeritus at the University of Kansas. Alex Schwartz is professor at the New School. There is a growing, bipartisan consensus that the U.S. suffers from a housing shortage, and that this shortage is at the root of the nation’s housing-affordability crisis. This argument can be found in the popular press , academic literature , industry reports , state and local housing plans , and in White House statements . As the Biden administration put it in a May 2022 housing plan , “The best thing we can do to ease the burden of housing costs is to boost the supply of quality housing.” The U.S. has long faced a severe housing-affordability crisis . About one-half of all renters and about one-fifth of all homeowners spend more than 30% of their income on housing expenses. More than 1.25 million people spent one or more nights in a homeless shelter during the course of a recent year. However, as real as the housing crisis is, it isn’t caused by a housing shortage. The nation’s overall supply of housing is adequate, and there is little evidence to show that rising housing costs are driven by a shortage of housing. True, some measures indicate a housing shortage. Freddie Mac , for example, points out that the growth in housing units has lagged behind the growth in households over the past decade, causing vacancy rates to drop below customary levels. A longer-term perspective, however, shows that America isn’t suffering from a housing shortage. Housing production has lagged behind household growth since 2010, but this doesn’t account for the massive overhang of housing produced in the previous decade. Fueled by the housing bubble of 2000-07, 160 homes were added to the stock for every 100 households formed during the aughts, our analysis of Census Bureau data shows. This level of production created a huge surplus of housing, which has yet to be fully absorbed. Put differently, from 2000-21, the nation grew by 18.5 million households. To maintain an adequate inventory of vacant housing, which historically would be 9.3% of the total, the housing stock needed to expand by 20.2 million units. Instead, it grew by 23.7 million housing units, producing a surplus of 3.5 million units. Nationally, there is no shortage of housing, and adding to the surplus won’t resolve the nation’s affordability problems. Nor is there a shortage in most metropolitan areas. Of the 707 growing metro markets, only 26 have shortages of housing, with household growth exceeding housing-unit growth. These markets tend to be small, containing less than 1% of the nation’s population. Two-thirds of the growing markets had a surplus of housing, meaning the increase in units from 2000-21 exceeded the growth of households by at least 10 percentage points. These growing markets with surpluses house about 72% of the U.S. population. In the remaining growing markets, housing supply and demand are in balance, with the growth of units equaling the growth of households or exceeding it by up to 10%. The largest 15 markets, all with populations of four million or more, added more units than households. The New York area was the largest, with a surplus of over a quarter-million units. The Phoenix area was the smallest, at just over 20,000 units. The belief that there is a housing shortage is correctly motivated by concern over the housing-affordability problems that confront so many households. But census data show that these housing-affordability problems largely reflect a mismatch between household incomes and housing prices. Here, prices refer to housing prices in the market as a whole, not just the prices of new-to-the-market homes, which fluctuate widely with the pace of housing production. Housing-affordability problems for the population as a whole aren’t related to housing shortages or low vacancy rates. Rather, they are driven by high overall housing prices and low household incomes. Geographic variations in housing prices and rents show no significant relationship with differences in housing supply or vacancy rates. The housing markets with the greatest affordability problems are those with the greatest job growth and the highest wage levels. Shortages of housing don’t drive affordability problems as much as strong job growth and high incomes. This is what pulls up housing prices. It’s conceivable that a huge increase in supply would eventually lead to lower prices. But that would require a major intervention in the market, and the case for it is weak. U.S. housing policy should focus less on adding to the already ample stock of housing and more on raising the incomes of low-income households and giving them access to good-quality housing in safe neighborhoods. We know how to do this. Raising minimum wages to the living-wage level will help the working poor afford housing. Zoning reform can encourage the production of multifamily housing, accessory apartments, and other less-expensive housing formats. Subsidized construction should be targeted for supportive housing and for affordable rental housing in places with actual housing shortages. The most effective housing assistance for low-income households is not found in building more units but in helping low-income households afford the units that already exist through housing vouchers for renter households and down-payment assistance for home buyers. The U.S. cannot build itself out of its housing crisis. Guest commentaries like this one are written by authors outside the Barron’s and MarketWatch newsroom. They reflect the perspective and opinions of the authors. Submit commentary proposals and other feedback to  ideas@barrons.com .