Falling homeownership rates and urban planning

Despite a legion of government policies, assistance and tax-breaks, homeownership rates are falling across the country and this is making a lot of people (and presidential candidates) write very worried op-eds about the American Dream.

According to Bloomberg, the US homeownership rate in July of 2015 was 63.4 percent, the lowest level since 1967.

In many metropolitan regions, things are even worse. According to Governing, the Boston region the homeownership rate in 2013, two years before the Bloomberg report, was 60.9 percent. Meanwhile the reason the rate is falling, according to Bloomberg, is the combination of stagnant wages, policies that make it more difficult to get mortgages and, of course, rising home prices.

But it’s just icing on the cake: according to Charlie Gardner, the percentage of people who owned their own home without a mortgage is lower than it was in 1920s and has been falling since 1945, even as total homeownership rose. Moreover, the amount of equity in mortgage homes has fallen enormously. It was 60 percent in 2006, fell to about 38 percent in 2009 and has since rebounded slightly to about 45 percent in 2013.

It’s hard to improve upon Gardner’s summation of the situation:

The implied conclusion here, that a dramatic expansion of debt has been necessary just to maintain the illusion of a stable homeownership rate (setting aside the explosion of debt in the 2000s necessary to support an increase in homeownership), puts an even more negative spin on the figures from the preceding post.  In short, a decline in homeownership has until the past few years been masked by shifting demographics and an increase in household debt.

In some respects the situation mirrors that of the infrastructure built to service it: a lot of debt and no way to get out. With wealthy people abandoning the suburbs for the cities and wages still stagnating, a lot more foreclosures could be coming in the future for those places, resulting in further damage to budgets.

One thing is clear: it’s time for governments to abandon the idea of homeownership as a path to middle class stability. Even if it was, it clearly isn’t now and maintaining property values is a zero-sum game for public officials: I’ve seen people oppose projects on the grounds that new construction increases property values, causing the displacement of the poor and elderly; I’ve also seen people oppose new construction on the grounds that it decreases property values, hurting the ability of the middle class to keep up. Even if critics are right in specific cases, a happy medium seems impossible.

A happy medium between rising and falling home values doesn’t even seem desirable. If a decline in homeownership has to be masked by such an explosion in indebtedness as happened during the Clinton and Bush Administrations, if the number of driving licenses in the country has been falling since the 1980s, if young people are buying fewer cars, if the return-on-investment for new highways has gone to negative 34 percent, if the demand for multifamily residential has gotten so huge that traditionally working class and impoverished neighborhoods are being gentrified, than it is clear that a major market shift is underway away from suburbia.

Cities and towns need to overhaul their regulatory regimes and allow the kind of neighborhoods people love to be built. Not only is traditional development more desirable, it’s also more sustainable, has less impact on infrastructure and is better for the environment.

Out with Levittown, in with Charlestown.

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