Bill Lindeke’s Chart of the Day from Thursday about changing homeownership rates shows what are indeed significant changes in the last decade in homeownership rates. For an even longer-term perspective, we can turn to IPUMS data from the American census. A question on homeownership has been asked in every census since 1900, with the exception of 1950.
Before the Great Depression the structure of home finance was quite different than it was today. Deposits of twenty percent were higher, and some banks required even higher fractions of the purchase price up front. Mortgages were significantly shorter, often no longer than seven years. Two sequences of events propelled American homeownership rates significantly higher than the 45% at which they persisted for the first third of the twentieth century. First, home-ownership fell significantly during the Great Depression and the federal government stepped in to backstop housing finance (see, for example, this accessible history of the New Deal changes and their consequences by Alex Gordon). Second, as Wellesley College economic historian Daniel Fetter has recently shown, rent control during World War II and post-war housing finance assistance to veterans led to a sharp rise in homeownership rates during the war and immediately after it.
Fetter’s research has shown that the World War II and post-war increase in homeownership rates was driven by changes among young adults who bought homes earlier than previous generations. If the recent trends are also concentrated in particular cohorts of young people, the recent decline in homeownership may last a long time.
(Note: I’ve used adult men’s homeownership rates to control a little for demographic change. The trends are fairly similar for the whole population.)
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Second sentence after the chart should read “Deposits of twenty percent were common, and some banks required even higher fractions of the purchase price up front”
I think we’re going to see a reversion to the pre-Depression pattern. We already have 1920s-era economic policies all over this country; we should expect a reversion to the same homeownership patterns.
I feel alone among the kind of folks who read streets, but I do not welcome any potential long-term trend away from home ownership. Landlording is a wonderful wealth-building business, and self-landlording is the only asset-heavy (wealth-building) business most folks can borrow to get into. Unless some new technology can disrupt our need for “shelter”, you either self landlord or you enrich a landlord.
Unfortunately, if you’re in the 99% who are being impoverished by our “bailouts for billionaires” policies, you’re eventually simply not going to be able to afford a house.
Fun fact: the highest homeownership rates are in former communist countries where every resident was given their (formerly state-owned) house or apartment for free in the mid-1990s.
I wonder how much of the increase in affordability of ownership was due to changes in construction. Both construction techniques and design changed dramatically from 1940 to 1960 which drove build costs down considerably. On the flip side it’s also seemed to result in a gob of 50’s, 60’s, and 70’s houses being torn down due to poor construction quality and unappealing design.
An ‘investment’ that depreciates to near zero in 40 or 50 years may not be such a good investment.
However, building a house whose major structure and design will last 100 or 200 or 500 years is a bit more expensive up front though much less expensive (monetary and environment) long-term. How do we make it work?