The attached piece originally appeared in the Autumn 2016 edition of Housing Finance International.
American political rhetoric endlessly repeats that homeownership is part of the “American Dream.” So it is for most people, especially if you are married, as we will see.
As part of promoting this “dream,” the U.S. government has for many years created large subsidies for mortgage borrowing and huge government-sponsored financial institutions to expand mortgage lending. Most notable among these are Fannie Mae and Freddie Mac, which notoriously went broke in 2008 while following the government’s orders to make more so-called “affordable” loans, and survived only thanks to a $189 billion taxpayer bailout.
Fannie and Freddie are still massive operations, featuring a combined $5 trillion in assets (that’s trillion with a “T”), equity capital that is basically zero and utter dependence on the credit of the U.S. Treasury.
Given these massive and extremely expensive efforts, how has the American homeownership rate fared? Let us look back 30 years to 1985, and compare it to 2015. Thus we can go past the housing bubble and collapse of the 2000s, as well as past the financial collapse of the savings and loans in the late 1980s, and observe what has happened over a generation.
What we see is that on average for the United States, from 1985 to 2015, despite all the efforts to push it up, the homeownership rate fell:
If you are married Americans, you have a very high and improved probability of owning your own home. It is easy to think of reasons why homeownership would be more achievable and more important to you if you are married than if you are not.
All other households, those which are not married, have a much lower homeownership rate. This seems logical. It is striking, however, that the homeownership rate for this group has also gone up a lot since 1985:
So here’s a puzzle: married household homeownership went up, and not-married household homeownership went up. Combined that is all the households there are. But the overall homeownership rate went down. How is that possible and what does it mean?
It means that the mix of married versus not married households changed dramatically. Married households, with their far higher homeownership rate, fell remarkably as a percentage of all households. Not-married households, with their much lower homeownership rate, rose remarkably as a percentage of households. So although both parts saw their homeownership rise, overall, it fell. Here is the change in the mix of American households by marital status:
This change in the mix of households explains the paradoxical homeownership pattern.
The same pattern also holds strongly for U.S. demographic sub-groups. For example, married black households have home ownership of 64 percent, significantly up from 1985, and not-married black household home ownership is also up, but the overall black home ownership rate is down:
Once again, this odd-looking result is explained by a dramatic shift in the mix of married versus not-married households:
There is an essential mathematical lesson in all this. You cannot tell what an average means unless you know how the mix of the population is changing. Equally important is the lesson in political economy. Homeownership, the most common modern form of property ownership, is reasonably argued to have important advantages in social progress and stability for a democratic society. Marriage, as is well documented, has substantial economic and social advantages, especially for children. Marriage and the rate of homeownership are strongly linked, at least in the United States.
It would be valuable if IUHF research could determine whether this pattern holds true across a range of other countries.
Image by robuart