Will the Homeownership Rate Fall to 63.5 Percent by 2020?

Arthur Nelson is quoted in yesterday’s USA Today as saying the ownership rate will drop one-half percentage point per year until it reaches 63.5 percent. His foundation for this forecast is a paper he was good enough to send me–I would link to it but I can’t find it on the Web.

It is certainly possible that the ownership rate would fall to its lowest level since 1985, but I am afraid I don’t find Professor Nelson’s argument to be convincing, because his paper contains no model. Rather, he puts together some survey results and short-term trends, expresses his long-held disdain for suburbs, and argues that 57 percent of housing units added to the stock between now and 2020 will be rental units. This would be a sea change, as there has not been a single year since 1973 where less than half of units built were single-family, and in many years, the single-family share exceeds 70 percent.

An appropriate model of tenure choice would statistically model the relationship between tenure choice and a variety of characteristics, including age, marital status, presence of children, race, residency status, education, income and the relative cost of owning versus renting. Here is what we know based on the econometric literature on tenure choice (none of which Nelson cites): old people are more likely to be homeowners; married couples are more likely to be homeowners, permanent residents are more likely to be homeowners, white people are more likely to be homeowners (even after controlling for other characteristics), and homeownership rises in income and education. We also know that when owning is a good deal relative to renting, people are more likely to buy.

So a paper that purports to forecast owning needs: (1) a well specified model; and (2) forecasts of variables that predict owning, including income and relative costs. I don’t know what either income or relative costs are going to look like in 15 years, and neither does Professor Nelson.

BTW, FWIW, I will take the over on 63.5 percent.

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About Richard K. Green 103 Articles

Affiliation: University of Southern California

Richard K. Green, Ph.D., is the Director of the USC Lusk Center for Real Estate. He holds the Lusk Chair in Real Estate and is Professor in the School of Policy, Planning, and Development and the Marshall School of Business at the University of Southern California.

Prior to joining the USC faculty, Dr. Green spent four years as the Oliver T. Carr, Jr., Chair of Real Estate Finance at The George Washington University School of Business. He was Director of the Center for Washington Area Studies and the Center for Real Estate and Urban Studies at that institution. Dr. Green also taught real estate finance and economics courses for 12 years at the University of Wisconsin-Madison, where he was Wangard Faculty Scholar and Chair of Real Estate and Urban Land Economics. He also has been principal economist and director of financial strategy and policy analysis at Freddie Mac.

His research addresses housing markets, housing policy, tax policy, transportation, mortgage finance and urban growth. He is a member of two academic journal editorial boards, and a reviewer for several others.

His work is published in a number of journals including the American Economic Review, Journal of Economic Perspectives, Journal of Real Estate Finance and Economics, Journal of Urban Economics, Land Economics, Regional Science and Urban Economics, Real Estate Economics, Housing Policy Debate, Journal of Housing Economics, and Urban Studies.

His book with Stephen Malpezzi, A Primer on U.S. Housing Markets and Housing Policy, is used at universities throughout the country. His work has been cited or he has been quoted in the New York Times, The Wall Street Journal, The Washington Post, the Christian Science Monitor, the Los Angeles Times, Newsweek and the Economist, as well as other outlets.

Dr. Green earned his Ph.D. and M.S. in economics from the University of Wisconsin-Madison. He earned his A.B. in economics from Harvard University.

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