Housing issues seem to come up on a daily basis. The news is flooded with information about housing starts, the strength (or weakness) of homes sales, foreclosure rates, underwater mortgages, the availability of credit – the list goes on and on. A recent article in The Guardian, a news journal from the United Kingdom (UK), titled “Brits buy homes, the Germans rent – which of us has got it right?” . The article noted that while the homeownership rate in England is much higher than that of Germany (69% vs. 42% respectively), the number of renters is increasing in the UK. This piqued my interest. I wondered, given the current economic downturn, due in large part to the housing industry itself, should the balance between homeowners and renters change in the post-recession economy?
Historically, homeownership has been and continues to be central to the American dream. Since the Great Depression government policies have been designed to promote homeownership. Many studies have documented the virtues of homeownership – neighborhood stability, higher education achievement, greater civic participation, improved health, and increased safety. However, the underlying assumption has always been that home values would not decline and, more than likely, would increase.The burst of the housing bubble has shown us that this is no longer a safe assumption.
In its 2011 “The State of the Nation’s Housing” report, The Joint Center for Housing Studies of Harvard University observed several significant changes in the US housing and rental markets:
- While single-family housing vacancies were relatively unchanged from 2008 to 2009, rental vacancies have fallen creating upward pressure on rental rates.
- Well over one-third of US households pay more than 30% of their income on housing (HUD’s generally accepted standard for determining housing affordability).
- Furthermore, in 2009, more than 19.4 million households paid more than 50% of their income for housing (the distribution was almost equally split between homeowners and renters).
- The US’s homeownership rate has fallen from its peak of 69% in 2008 to below 67% and, depending on foreclosure trends, may continue to fall.
- A Fannie Mae survey showed that the number of renters who believe that buying a home is a safe investment is sharply lower than in 2003 and continues to decline.
These observations should not be overlooked as we continue to climb out of the Great Recession. Affordable housing is needed now more than ever yet external factors are working against it. Reduced access to credit due to higher income, down payment and credit score requirements, while justifiable in light of the subprime mortgage crisis, will continue to hinder homeownership opportunities. This disproportionately affects the low- and middle-income families who are also facing the resultant rising rental rates.
As the baby boom generation ages and begins to exit the housing market, there is not an ample market waiting to enter. And the future impact of the echo-boomer generation (those born 1986 and later) is less predictable than previous generations. Not only do they face a soft employment market, they cannot expect to find a job with a company for whom they will work for their entire career. Many of the jobs now available have lower income returns. Renting becomes an attractive option since it offers greater mobility in finding employment. Additionally, the increasing amount of student loan debt that faces many recent graduates may also affect their credit worthiness and willingness to take on more debt.
All of these factors put increasing pressure on the rental markets both in terms of supply and affordability. We need to take stock of where we are and where we are headed and begin to think creatively about the affordable rental supply and housing policies.
Despite the plethora of gloomy statistics, I still believe that homeownership remains a virtuous goal and has a stabilizing effect on the economy. What is unclear to me is to what extent we need to redefine our expectations of a homeownership society. Considering the new externalities affecting the housing equation, is there or should there be a different equilibrium for the homeownership–rental ratio? Understanding this better may help in attaining our goals of providing safe, decent and affordable housing options for everyone.
Guest Contributor: Rosalyn Keesee