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The long-bemoaned housing shortage may not exist after all. Rather, there\u2019s a shortage of cheap rents and affordable homes, according to a new study.\u00a0<\/p>\n
The peer-reviewed study<\/a>, published in April in the academic journal Housing Policy Debate, <\/em>found that between 2000 and 2020, the U.S. had a surplus of 3.3 million homes\u2014defying conventional wisdom that the nation is facing a housing shortage.\u00a0<\/p>\n \u201cWe\u2019re sort of an outlier in our analysis, and partly it\u2019s because we\u2019re taking this longer-term perspective,\u201d Alex Schwartz, one of the study\u2019s authors and chair of the master\u2019s program in urban policy at the New School, tells Fortune.\u00a0<\/em><\/p>\n The study examined how fast the housing stock grew between the first two decades of the 2000s and compared it with 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 that examine housing stock\u2014which find that there is a national shortage\u2014don\u2019t go back in time far enough and therefore overlook the large number of homes that were built during the housing boom that stretched from 2000 to 2007.\u00a0<\/p>\n \u201cThe housing bubble that we experienced was a big growth in prices, but also a big growth in production,\u201d McClure tells Fortune.<\/em>\u00a0<\/p>\n The collapse of that formerly 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.\u00a0<\/p>\n Capturing such a long stretch of time makes sure the research doesn\u2019t overreact to short-term ups and downs of the market, McClure and Schwartz argue. \u201cWe massively overbuilt the number of housing units we needed, and we are still here in 2024 trying to absorb that massive overbuild in housing,\u201d McClure said.\u00a0\u00a0<\/p>\n From 2000 to 2010 the U.S. had a surplus of 4.6 million housing units, while in the following decade there was a shortage of 1.3 million fewer units than population growth would demand. All combined, that nets out to a surplus of 3.3 million homes from 2000 to 2020.\u00a0\u00a0<\/p>\n The findings contrast with a plethora of research that points to a widespread shortage of new homes being constructed. Earlier this month, the housing website Zillow<\/a> published an analysis that showed in 2022 there was a housing deficit of 4.5 million new homes<\/a>. While a more recent survey from Realtor.com estimated that from 2012 to 2023 there was a shortage of 2.5 million homes<\/a>.<\/p>\n However, these studies prefer to measure the construction of new homes, while McClure and Schwartz look at vacant homes. That on its own is a complicating factor. As the two cite in their paper, the physical condition of the vacant homes isn\u2019t fully known. Some apartments may be sitting 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 entirely dilapidated and therefore uninhabitable\u2014doing little to solve the housing crisis.\u00a0<\/p>\n But the new finding about overall housing supply levels, which Schwartz says was a surprise,\u00a0offers some nuance to one of the major problems in the housing market.\u00a0<\/p>\n \u201cThe issue is not so much about aggregate shortfall of housing units, but rather a mismatch between the cost of housing and the incomes of households,\u201d Schwartz said. \u201cMost especially among the lowest-income households, where there really is a mismatch between what they can afford and the number of units that are affordable.\u201d<\/p>\n After this study, economists might debate the level of housing supply available in the U.S., but the core issue appears to remain the same: affordability<\/a>.\u00a0\u00a0<\/p>\n The researchers found a shortage of housing that low- and very low-income families could afford. 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 making less than 30% of the median\u2014roughly equivalent to the poverty line, according to the paper.\u00a0<\/p>\n McClure tries to distinguish between households making around $45,000 a year, which might be on a tight budget, and those making less than $22,000, which are the poorest in the U.S. When assessing the rental markets in 381 metropolitan areas and 526 small towns, the research found that there was an average shortage of about 7,700 units that the very poorest households, making under $22,000, could afford, according to the study.\u00a0<\/p>\n For those households, which require government assistance to find housing, the absolute highest they could afford to pay for rent is $550. Building new homes and apartment buildings can\u2019t address the shortage for the absolute poorest. McClure explains that no private developer can build a new home or apartment that would be within the price range for the poorest of the poor. \u201cEven if you could build the unit for $0, there is absolutely no way a private developer can build a unit at that [$550] price and survive,\u201d McClure says. \u201cJust the property taxes, insurance, and utility costs are north of that number.\u201d\u00a0<\/p>\n 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.\u00a0\u00a0<\/p>\n \u201cIn many circumstances, it is best to make use of existing stock rather than pay the very large sums needed to add stock to an already ample market,\u201d the paper reads. \u201cHelping low-income households rent existing units is much less costly than building deeply subsidized units with rents affordable to low-income households.\u201d\u00a0<\/p>\n But that\u2019s not to say McClure and Schwartz are against building new housing. Cities and towns\u00a0should look to build \u201ca wider array of housing types,\u201d according to Schwartz, such as smaller units or higher density housing<\/a>.\u00a0<\/p>\n The reason new housing inventory will need to be built, even during a surplus, is because rents and home prices can\u2019t be expected to come down on their own. \u201cIt\u2019s very unlikely to think that existing households on their own would just reduce their sales price unless they were required to for some reason,\u201d Schwartz said.\u00a0<\/p>\n Building more housing is also seen as an effective way to lower rents. A seminal piece of research<\/a> from NYU\u2019s Furman Center found that building more homes actually lowers rents<\/a>.\u00a0<\/p>\n New housing developments often raise the fears of gentrification; that existing residents will get priced out of ritzy new apartments in formerly affordable neighborhoods. The Furman Center research contends that the law of supply and demand holds true in the housing market as well.\u00a0<\/p>\n 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 construction, housing supply increased 4%. Meanwhile, rents for three-bedroom apartments dropped 26% to 33% compared with similar areas, according<\/a> to a working paper from May 2023.\u00a0\u00a0\u00a0\u00a0<\/p>\n Other studies have found the effect of new housing isn\u2019t usually as stark as the Auckland example. More often than not, overall rents do still rise when new housing is built, but not as quickly<\/em><\/a> as they would have otherwise.\u00a0<\/p>\n McClure doesn\u2019t disagree with that research, but notes that it doesn\u2019t address the poorest of the poor. \u201cAlex and I are not looking to lower $2,000 rents to $1,800\u2014that little difference is not enough,\u201d McClure says. \u201cWe are truly trying to find ways to rent apartments to people who cannot afford more than $500 a month.\u201d<\/p>\n<\/div>\nA housing surplus that still prices out<\/strong> many<\/h3>\n
Building new homes can reduce prices in the long term<\/strong><\/h3>\n