A traditional gateway to the middle class, homeownership remains an important goal for most Americans. Public opinion polling consistently shows that most renters hope to become homeowners once they can muster the necessary financial resources to handle the responsibilities that come with owning a home.
These facts remain in place despite recent questioning of the role homeownership plays in American society. This reevaluation is somewhat understandable given the impacts associated with the Great Recession.
According to the Census Bureau's Current Population Survey/Housing Vacancy Survey, the national homeownership rate fell from 69.2 percent in 2004 to 65 percent for the second quarter of 2013. It is also worth noting that the 2010 Census reported a national homeownership rate of 65.1 percent, which suggests the HVS numbers are high by perhaps 100 to 200 basis points.
Nonetheless, the drop in homeownership in recent years marks the largest decline since the Great Depression. And these declines in homeownership have been particularly concentrated among younger households. For example, in the graph above it is interesting to note that 35-44 year olds in the 1980s and 1990s had homeownership rates higher than the national rate. And for that generation, those rates continued to increase. For example, those 35-44 year olds of 1990 are now aged 58 to 67 and have a homeownership rate of at least 77 percent.
In contrast, the homeownership rate of those aged 35-44 today, a key group in terms of housing demand, has fallen below the overall homeownership rate. Today's 35-44 cohort has a homeownership rate of 60.3 percent as of the second quarter of 2013, compared to 65 percent for the overall population. And this marks a dramatic decline from the 70 percent rate for those aged 35-44 in 1982. These trends are consistent with more recent housing data suggesting declines and delays of first-time homebuyer purchases.
While the current overall 65 percent homeownership rate may fall somewhat over the coming year or two (and be reduced when benchmarked with the 2010 Census data), the period of significant declines in ownership has likely ended. However, the age data presented above suggests that homeownership in the future will be slightly more concentrated among older and wealthier households.
Over the long run, this change will represent a loss to younger families and their neighborhoods. Clearly, homeownership is not for everyone at every stage of life. And the purchase of a home is based to a large degree on lifecycle factors, including age and marital status. There's a time to rent and a time to own for most Americans, and a balanced housing policy should recognize these circumstances.
But with prudent underwriting, the attainment of homeownership confers benefits for families and their communities. These benefits include improved health and school outcomes for children, increased civic engagement and volunteerism, reduced crime and higher lifetime wealth. There exists a rich academic literature spanning the fields of economics, political science, sociology, geography and medicine documenting consistent and measurable benefits for families and their neighborhoods from homeownership.
Why? Economics. Ownership means the residents of a neighborhood gain an additional reason to care about its future – the financial value of their investment. Unlike stocks and bonds, a home's value is determined by its physical features as well as its environment. Because of this stakeholder status, homeowners are more likely to use their scarce time and resources to improve their community. And this results in more civic engagement, more volunteerism and other socially desirable outcomes.
Our society has long promoted homeownership. For example, after noting some of the lessons of the housing crisis, the Bipartisan Policy Center's Housing Commission reported:
Despite these experiences, the commission strongly believes that homeownership can produce powerful economic, social, and civic benefits that serve the individual homeowner, the larger community, and the nation.
And for these reasons, ensuring policies that facilitate sustainable homeownership must remain at the core of our nation's housing policy agenda. The decline of homeownership, particularly among those younger than 45, could be made worse if the mortgage interest deduction is weakened or the housing finance system is restructured so that debt financing is less accessible for the purchase of a home.
In the medium-term, the future of homeownership depends on job creation and income growth for younger workers. Economic policies that promote growth and employment will help younger families save for a downpayment and facilitate successful mortgage underwriting. In contrast, policies that deter investment will have significant long-run impacts, including how and where younger families form and grow. The fact that homeownership promotes positive outcomes with respect to family development means that it in turn is worth protecting.
Robert D. Dietz is an economist with the National Association of Home Builders. Previously an economist with the Congressional Joint Committee on Taxation, Robert writes on housing and policy issues at NAHB's Eye on Housing blog and @dietz_econ on Twitter.