The homeownership rate and housing finance policy, Part 1: Learning from the rate’s history
JOINT CENTER FOR HOUSING STUDIES OF HARVARD UNIVERSITY
DON LAYTON, SENIOR INDUSTRY FELLOW
Among the thousands of statistics that the government produces to describe the country’s economic and social health, the homeownership rate has an exalted place among policymakers in Washington. This single statistic – currently running about 65 percent – is regarded as one of the most important comprehensive measures of how well the country’s socioeconomic system is “delivering the goods” for the typical American family. A high homeownership rate reflects that many families have income large enough not only to cover monthly living costs but also to generate enough cash surplus to save for a downpayment and then to sustain homeownership. It also indicates that the cost of purchasing a house and financing a mortgage on it is affordable.
In addition, homeownership is regarded as causing an improvement in the quality of life of a typical family. It is the most common method for such a family to build wealth: by paying down mortgage principal each month and participating in the long-term appreciation of home values, a family can build wealth that can be used for retirement or other needs, including helping the next generation. Such wealth creation therefore provides a major social as well as economic benefit. Add in protection against being forced to relocate by a landlord due to unaffordable rent increases or other actions, and homeownership is validly seen as a source of family stability.
Not surprisingly, politicians and policymakers are therefore often focused on finding ways to push the homeownership rate higher. As a participant in the housing finance policy community since 2012, when I became CEO of Freddie Mac, I have heard often how crucial housing finance was in creating the much higher rate of homeownership that evolved after World War II – roughly 65 percent, compared to less than 50 percent prior to the Great Depression. I have also heard frequently from housing advocates how specific proposed change in housing finance, including some that seem quite limited to me, would result in many more families (“millions” is sometime claimed) becoming homeowners. Unfortunately, despite such claims, through decades of the government’s implementing various programs in housing finance aimed at increasing the sustainable rate of homeownership, it remains today at almost exactly the level achieved over fifty years ago – about 65 percent.
It thus seems time to step back, take stock, and look for fresh ideas.
Top 100 U.S. Cities Ranked by Homeownership Rate 2014-2018
Sources: U.S. Census Bureau, American Community Survey (ACS)
As such a step, my new paper “The Homeownership Rate and Housing Finance Policy: Part 1 – Learning from the Rate’s History,” reviews the history of the US homeownership rate over roughly the past 130 years. The objective of this review is to establish a foundation for determining what policy choices, especially in the field of housing finance, would likely be successful in finally raising the rate – which will then be explored in Part 2.
It would indeed be a major socioeconomic success for the United States if the homeownership rate could rise from its 65 percent level to 70 or 75 percent on a sustainable basis: about 6 to 13 million more families (respectively) would become homeowners, with all the economic and social benefits that increase would generate. (As will also explored in Part 2, that can’t realistically happen without addressing the major racial homeownership gap that exists.) But, as already noted, after so many programs designed to do just that have failed for the past half century, it obviously isn’t an easy thing to accomplish – in fact, one inescapable conclusion from the history is how incredibly hard it is.
Part 2 will include an examination of the proposal made by the Biden campaign to establish a large and generous downpayment assistance program with Federal government funding. That proposal, which represents a change in the thinking that has dominated policymaking for many years, does indeed have the potential to be a major component of a successful effort to, at long last, materially and sustainably raise the homeownership rate above its long-standing 65 percent level.
Click here to read the full paper from Harvard Joint Center for Housing Studies