Why the downward trend in homeownership rates won't reverse itself

Data: U.S. Census Bureau; Chart: Naema Ahmed/Axios

The housing market is showing signs of life. Mortgages are being refinanced at astonishing rates, housing is more affordable thanks to lower interest rates, and Fannie Mae's housing sentiment index is at an all-time high.

Yet, but: Homeownership rates have plunged over the past 15 years, in a trend that won't (and shouldn't) reverse itself.

  • The homeownership rate started to decline in 2004–2005 in the middle of the housing boom. For all the record issuance of subprime mortgages, option ARMs and NINJA loans, the rate declined, at almost exactly the same rate at which it continued to deteriorate during the worst years of the financial crisis. Even the post-crisis recovery didn't change things. Only in the past couple of years have homeownership rates ticked up a tiny bit.
  • Student loans are part of what's going on, but only part. Most homeowners are college graduates, after all. And college graduates who have defaulted on a student loan, for any reason good or bad, are going to find it very hard to get a mortgage.

How it works: House prices have been rising where they're already unaffordable and falling where they're within reach. To put it another way: If you want to make a good investment, you can't afford it; if you can afford it, it's not going to be a good investment.

Demographic trends also work against homeownership.

  • There's a broad move out of rural areas and into urban ones, which is to say a move from where homeownership levels are generally high to where they're generally lower.
  • Homeownership among the white population is about 70%, but it's well under 50% for the black population and Hispanics, and even Asians are well below the white level. As America becomes increasingly nonwhite, the culture will continue to move away from the homeownership ideal.

The bottom line: Homeownership has long been at the heart of the American dream, and it accounts for a huge proportion of middle-class wealth. But it's on the decline, and it's not coming back.

What's next

The roots of the rental economy

While American households don't have a lot of liquid savings, the capital markets are positively sloshing with liquidity. They're a key source of funds for companies like Opendoor and Zillow, which are building enormous businesses buying houses for cash at algorithmically generated prices.

What they’re not saying: While these companies are happy to talk about how easy they make selling a house, they talk less about the people who buy those houses. That's because, a very large part of the time, the homes never end up in the hands of individuals. Instead, they end up in massive rental portfolios.

Go deeperArrowAug 11, 2019 - Business

D.C.'s growing low-cost housing gap

The Washington D.C. region already has a severe shortage of affordable housing, and that deficit will widen over the next 10 years, according to a new report out today from the Urban Institute.

Why it matters: The lack of affordable housing means many low-income families, especially renters, have high cost burdens, live further away from their jobs and have long commutes — or end up leaving the region altogether.

  • Without affordable housing, employers have to pay more to attract and retain workers. Washington is the 5th-largest employment market in the U.S., and recent employment has grown fastest in the low- and high-wage jobs.

What's coming: The Washington, D.C. region needs 374,000 additional housing units by 2030, according to the economic growth rate projected by the Metropolitan Washington Council of Governments.

  • 40% of those additional units would need to be in the middle-cost range, and another 38% would need to be low-cost units to match projected needs. Low-income employment is expected to grow faster than the number of high-paying jobs.
  • D.C. Mayor Muriel Bowser has set a goal of building 36,000 new housing units, including 12,000 affordable units, by 2025.

The problem: Overall, the D.C. region's building has not kept pace with its population growth. Since 2010, it has added housing units at only 56% of the rate produced during the 2000s.

  • Most of the region's new housing development has occurred outside of the District of Columbia. And every jurisdiction had shortage of lowest-cost units, according to Urban Institute's analysis.
  • There's also significant competition for the existing low-cost housing units: The report found most households in the lowest-cost units could actually afford to pay more for rent — meaning they're squeezing out the households who really need the lowest rents.

The big picture: Due to the high cost of development in the area, the market doesn't incentivize the creation of more lowest-cost housing units without significant subsidies. But it's unlikely that federal funding for public housing and vouchers will increase anytime soon.

  • Affordability commitments will end for more than 80% of today's affordable units by 2035, raising worries that owners may choose to redevelop it to fetch the market rate when that time comes.
  • Only 6.7% of the region's vacant lots are zoned for multifamily housing.

What's next: Urban Institute researchers recommend that the local governments make targeted investments that preserve existing affordable housing units, while also incentivizing developers to build more in the low- and middle-cost ranges.

The rural America death spiral

Illustration: Sarah Grillo/Axios

Many of the nation's current pathologies are taking a heavy toll on the majority-white population living in rural America, which was severely impacted by the opioid crisis and has dealt with falling populations, job losses and rising suicide rates.

Why it matters: The malaise and discontent that President Trump has tapped into goes beyond the racism we've seen over the past few weeks and includes anger at a changing world and frustration at dwindling opportunities close to home. These trends are further entrenching the rural-urban schism that came to light in the 2016 election.

Go deeperArrowAug 12, 2019 - Politics