The nation’s homeownership rate slipped to its lowest level in 19 years in the first quarter as more households decided to rent. This disturbing trend is holding back home sales while the demand for rentals has increased the nation’s median rent to an all-time high with vacancy levels to near record lows. With the economy in full recovery mode, why are more folks saying no to home ownership?
According to the U.S. Census Bureau, 64.8 percent of homes in the U.S. are owner occupied. In California 54 percent. That’s the lowest percentage since 1995. The rate of homeowners is now higher in Canada and Mexico than in the United States. The concern among housing economists is the declining rate isn’t a short-term tread that will rebound in a few years but a structural change in our culture that will have long-lasting economic and societal effects.
Homeownership is the glue that binds communities and neighborhoods together. Homes are more than shelter; they are where we raise our family in communities where our children attend school and friendships are formed. In every neighborhood, incomes and ethnicities may be different but all share the common goal of preserving the value of our homes and subsequently the quality of our neighborhoods. There is a pride of ownership, a sense of permanency and a commitment to the community not normally found among non-owner occupants.
For many Americans, owning a home is their largest financial investment. It may provide tax benefits to some, but allows everyone the same opportunity to build equity and thereby financial security. When homes appreciate in value, it allows the homeowner to convert their equity into tax-free profits or reinvest their gain into another home. A home without a mortgage may make retirement an easier financial transition. Homeownership is the easiest leveraged entry into a cornerstone of capitalism, private property.
There are many reasons why our country has instituted tax incentives to encourage homeownership. Neighborhoods with a high percentage of homeowners have less crime, higher graduation rates, greater family income; they pay more local, state and federal taxes and buy more stuff for the home than do non-owners. Homeowners are twice as likely to vote and 10 times more often to support charities and non-profits. Homeowners have a higher net worth, are less dependent on government assistance and live longer.
From a historical perspective, homeownership has been ingrained into our country’s history. We developed as a nation of homesteaders. Homes were the original centers of business and commerce. In the 1800s it became a national priority to expand west and build homes. Our government provided millions of acres of land for those who would build homes or provided the transportation infrastructure to settle the west. It was our “Manifest Destiny.”
Homeownership was once considered a necessary progression in life. Earlier generations built our country through homeownership as future generations were expected to do. The easy access to home financing, adopted by Congress in the 1930s, provided nearly everyone the opportunity to own a home and changed our country into a nation of homeowners. Ownership and the wealth it created led to the development of the largest middle class in the world.
Our declining rate of homeowners has been linked to many economic and demographic changes — less affordable, delayed household formation, high student debt and even lazy Millennials. That’s all partly true but what’s also true is that ownership is no longer viewed as a national priority. For a growing number, owning a home is as outdated as traditional marriage.
Just as there is a growing resentment to individual accumulation of large amounts of wealth, there is a disturbing sense that homeowners are treated as a privileged class benefited by tax subsidies at the expense of everyone else. Some blame greedy homebuyers with their liar loans as responsible for the 2008 recession. The large single family detached homes, often called McMansions, have somehow become politically incorrect. They are too big, consume too much energy and have lawns and gardens that require too much water.
The political environment is also changing. The positive endorsement of building homes and ownership is not as enthusiastic as it was once. We have fewer lawmakers who are actual homeowners and most of their voting constituents, living in the more heavily populated coastal cites, don’t own a home. In LA County the majority of households are non-owners and in San Francisco County the ownership rate is only 36 percent. This political reality has given rise to increasing “tenant rights” legislation at the expenses of more taxes and regulations directed at homeowners.
And while it is difficult and un-neighborly to cite our neighbor’s home as being a blight on the land, consuming too many resources and an infringement on open space, we readily jump into the fray whenever and wherever new homes are proposed.
Another example that homeownership is a declining national priority are the financing obstacles put into place by the Fed. Since the federal takeover of residential mortgage financing, would be homeowners/borrowers have been treated as suspected financial terrorists. New federal mortgage regulations have contributed to dropping mortgage originations to their lowest level since 2000.
A growing number of Americans now believe that owning a home is an outdated economic and social concept that only the very wealthy can afford. The opportunity for homeownership has always been a concept that united us as a country. Hopefully it will not be another issues that further divides us.
Ken Calhoon is a real estate broker. Questions or comments can be e-mailed to [email protected].