Real Estate

Hunting for the Perfect Rate of Homeownership

Living the American dream comes with a lot of upsides. It also has one big downside.

So, like, 63 to 65 percent?

Photographer: David Paul Morris/Bloomberg

Homeownership has all sorts of positive effects. According to a 2016 summing-up of research on the "Social Benefits of Homeownership and Stable Housing" by National Association of Realtors economists Lawrence Yun and Nadia Evangelou, it brings:

  • Improvements in educational achievement;
  • Increased civic participation;
  • Physical and psychological health benefits;
  • Reductions in crime;
  • Reduced need for public assistance; and
  • More investment in property maintenance and improvement.

Then there's a not-so-great thing that comes with homeownership: increased unemployment. That's the conclusion of a newish paper by Federal Reserve Board economist Daniel Ringo, who combed through the employment and housing histories of a cohort of Americans who were in their teens or early 20s in 1979 and found that "home ownership is a significant hindrance to mobility, and homeowners suffer longer unemployment spells and more frequent job loss because of it."

This presumably has negative effects on more than just the homeowners who can't find jobs. Residential mobility enables economic adaptation and growth, and owning a home can make it harder to move. It adds friction to the economy.

Having lots of people own their homes is good for the economy and society, then, but having too many people own homes is bad. This raises an obvious question: What is the optimal homeownership rate? Someone actually asked this on the question-and-answer site Quora in January. Brookings Institution economist Karim Foda responded that there probably isn't one, in part because there are so many different things a society might want to optimize, while Southern Methodist University economics Ph.D. student Erik Hille speculated that it was "somewhere between 63 percent and 65 percent."

If you look through the quarterly homeownership statistics that the Census Bureau has been compiling since 1964, it's easy enough to see where Hille is coming from:

The Rise and Fall of the Homeownership Rate

Owner-occupied housing units as a percentage of total occupied housing units

Source: U.S. Census Bureau

Note that the y-axis does not go to zero (or to 100, for that matter).

In this view, the sharp rise in the homeownership rate that began in the mid-1990s looks like an unnatural departure from the long-term norm that led to, and was in turn corrected by, the financial crisis of 2007 and 2008. Take a longer view, though, and it's apparent that there was nothing natural about the pre-1995 norm, either.

A Longer View of the Homeownership Rate

Owner-occupied housing units as a percentage of total occupied housing units

Source: U.S. Census Bureau

Note that the y-axis does not go to zero (or to 100, for that matter). Data through 1960 is from decennial censuses; from 1964 onward it's fourth-quarter numbers from the Current Population Survey/Housing Vacancy Survey.

The 1995-2005 homeownership increase still stands out here, but it's dwarfed by the rise from 1940 to 1960. That leap was driven by mass affluence, the automobile-enabled rise of the suburban single-family home and -- most important, in my view -- an array of federal policies that encouraged homeownership. In the 1990s and early 2000s, it was a mix of federal policy and what a couple of Federal Reserve Bank of San Francisco economists in 2006 innocently dubbed "innovations in the mortgage finance industry." Those innovations didn't work out so well! But that's not really conclusive evidence that 69.2 percent (the all-time peak reached in 2006) is an unsustainable homeownership rate.

Here, for example, are the homeownership rates in 37 countries, most but not all of them members of the affluent-democracies club that is the Organization for Economic Cooperation and Development.

Homeownership Rates in Other Countries

Share of total households, 2014 or latest year available

Source: Organization for Economic Cooperation and Development

The U.S. scores pretty low, doesn't it? That's partly because the list is full of small European nations where people presumably have less reason to move; among the 10 largest economies represented here, the U.S. homeownership rate ranks near the middle. My biggest takeaway from this chart, though, is that different countries are capable of sustaining quite different homeownership rates. There's no obvious optimum.

Also, while the high U.S. ranking in a 2011 OECD study of residential mobility 1  might seem to indicate that a low homeownership rate is conducive to mobility, that link doesn't hold up for other nations. People move a lot in high-ownership Iceland; they don't move much in low-ownership Germany.

I'm also not quite sure what to make of the link or lack thereof between historical homeownership and mobility trends in the U.S. Moves across state lines have been declining since 1970 and those across county lines within states since 1987. Both took an especially sharp drop after 2000.

Americans Aren't Moving As Much

Percentage of population age 1 and older that moved across county lines in previous year

Source: U.S. Census Bureau

Dotted lines represent years with no data.

That post-2000 drop coincided, more or less, with a big increase in the homeownership rate. But it also coincided with other things, including a recession and several years of nearly nonexistent job growth. There have been several studies in recent years attempting to explain why residential mobility has declined in the U.S., and they all focus on factors other than homeownership rates per se. Also, a 2004 study of long-run migration data by historians Patricia Kelly Hall and Steven Ruggles found that the percentage of white Americans born in other states declined over the second half of the 19th century and was flat for most of the first half of the 20th century before making a great leap between 1940 and 1970 (among blacks, the increase in migration began much earlier, in about 1900). That period of course also witnessed a great leap in the homeownership rate.

So what is the optimal homeownership rate? Well, it's complicated -- although I guess it could be somewhere between 63 percent and 65 percent.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
  1. The metric used was percentage of households that had changed residence within the last two years. The U.S., at 21 percent, came in fourth among 26 nations ranked, behind Iceland (29 percent), Australia (24 percent) and Sweden (23 percent).

To contact the author of this story:
Justin Fox at justinfox@bloomberg.net

To contact the editor responsible for this story:
Brooke Sample at bsample1@bloomberg.net

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