The Changing Strength of Socioeconomic Factors affecting home Ownership in the United States: 1960–1990
| Date | 01 September 1998 |
| Author | Joseph Gyourko |
| Published date | 01 September 1998 |
| DOI | http://doi.org/10.1111/1467-9485.00108 |
II
NTRODUCTION
Looking at the aggregate propensity to own a home or the most widely cited
housing affordability index might lead one to conclude that nothing very
interesting or important is occuring with respect to home ownership in America.
Approximately 65% of US households are owner-occupiers in 1990, up from
60% in 1960. The National Association of Realtors’ (NAR) well known
housing affordability index indicates that single family housing is now more
affordable than at any time in well over a decade.
However, the results of a research program that I and my colleagues at
Wharton’s Zell/Lurie Real Estate Center have been embarked on for the past
few years show that the relatively stable aggregate home ownership propensity
is masking potentially important changes in the access of key demographic and
socioeconomic groups to ownership and that housing affordability conditions
have changed appreciably for different groups of households.
With respect to access to ownership, the most important change is the
increasing delay in achieving that tenure which is now evident among the least
well-educated whose labour market fortunes have deteriorated the most in
recent decades. While it is not yet possible to determine whether the ownership
propensities of less well educated households ultimately will converge to the
higher propensities of the better educated, there is no doubt that the speed of
convergence has slowed. This means that a new pool of longer term renters
already exists, and it raises the spectre of a new and permanent renter class in
America. The reasons this change is not reflected in changes in aggregate
ownership are twofold. First, the number of poorly educated households headed
by someone without a high school education, while still absolutely large, has
declined over time. Second, the aggregate ownership rate is being influenced by
a very favourable change in the age distribution, with higher propensity to own
older households constituting a growing fraction of all households.
Another important change in underlying ownership trends involves the impact
of f amily structure–marital status and the presence of children specifically. The
negative influence of not being married and/or having minor children on the
466
Scottish Journal of Political Economy, Vol. 45, No. 4, September 1998
© Scottish Economic Society 1998. Published by Blackwell Publishers Ltd, 108 Cowley Road, Oxf ord OX4 1JF, UK and
350 Main Street, Malden, MA 02148, USA
THE CHANGING STRENGTH OF
SOCIOECONOMIC FACTORS AFFECTING
HOME OWNERSHIP IN THE UNITED STATES:
1960– 1990
Joseph Gyourko*
*University of Pennsylvania
probability of owning has f allen substantially since 1960, particularly among
younger households. For younger households who are prospering in the labour
market, delays in marriage and childbearing are no longer the enormous social
and cultural impediments to ownership they once were.
A final change in ownership behaviour along demographic lines involves
race. In recent times, there are increasingly large adverse racial impacts on the
probability of owning among the youngest adult households. History suggests
that substantial convergence in ownership rates will occur over the life cycle, as
among older cohorts minorities tend to own at 90% or more of the rate f or
comparable whites by the time both reach their mid-30s. However, more recent
data hints that even among middle aged households the trend towards full
convergence in ownership propensities weakened initially in the 1970s and has
not strengthened since. The precise reason for this is unknown.
In terms of housing affordability, some scepticism about the widely known
NAR index is warranted because it is not informative about cross sectional
variance in affordability conditions. This index is constructed around the median
income household and the median price home. Specifically, it has a value of 100
if the median income household just qualifies f or the median value home. With
interest rates being much more volatile than incomes, changes in the index
largely reflect variation in mortgage rates. Thus, the excellent affordability
conditions signalled by the NAR index are the result of the currently low long-
term interests in US capital markets.
A different way to look at the affordability issue is to ask whether a home of a
given quality from a decade or two ago is more or less affordable today to a
household similarly situated to the one that then occupied the home. By posing
this question for different quality homes, the f ocus of analysis shifts from the
median income household and the median price home. This new focus
highlights that a combination of f alling real wages and rising constant quality
real home prices has led to deteriorating affordability conditions for less well
educated and lower income households since the mid-1970s.
These changes are of more than academic interest. Politically, home
ownership has been a key part of the ‘American Dream’, long functioning to
make households from different cultures and races into equity holders in their
communities. Economically, ownership is important because of its unique role
in terms of household wealth creation and retention. Housing is treated very
favourably by the US tax code, as owners never have to declare as income the
imputed service flow on their homes, almost never have to pay capital gains
taxes on their homes, and benefit from subsidies associated with the financing
of housing. If the benefits of this asset class are accessible to most citizens, at
least in a life cycle sense, the implications for the distribution of tax expendi-
tures and of wealth are not of paramount interest. However, if as recent data
suggest is the case, access to this investment class is becoming increasingly
skewed, then the same may happen to the distribution of wealth.
These issues are discussed in more detail in the remainder of the paper. In
doing so, it should be emphasized that this paper draws almost exclusively on
recent research that is part of Wharton’s Zell/Lurie Real Estate Center research
© Scottish Economic Society 1998
FACTORS AFFECTING HOME OWNERSHIP IN THE US 467
To continue reading
Request your trial