Thursday, October 06, 2011

Biggest drop in home ownership rate since Great Depression

News from The Associated Press
WASHINGTON (AP) -- The American dream of homeownership has felt its biggest drop since the Great Depression, according to new 2010 census figures released Thursday.

The analysis by the Census Bureau found the homeownership rate fell to 65.1 percent last year. While that level remains the second highest decennial rate, analysts say the U.S. may never return to its mid-decade housing boom peak in which nearly 70 percent of occupied households were owned by their residents.

Part of the reason is that from 1995 to 2008 the rate increased so much. The National Home Ownership Strategy that began in 1995 was intended to expand home ownership, based on the fear that it was falling. However, the subprime fiasco jacked the rate way up to 70%, and it has fallen as the foreclosure crisis threw people from owner to renter (or homeless) status. Will it ever go back to 70% again? I doubt it--at least not in the forseeable future. But I don't think that's a bad thing in itself. We don't all need to be home owners, and in fact lots of condo buildings should and will become apartment building in the years to come.


Anonymous said...

I think much of the "home ownership" push was to feed Wall Street, not vice-versa.

Think about it. The HOAs, etc. focused on commoditization of homes. In many, many "master planned subdivisions", every 3rd to 8th house is the same floor plan/model. The big builders had their own mortgage division in order to help create an artificially high price for the first few homes sold.

Once the baseline "price/square foot" was established, it was easy enough to sell other homes using other lenders. The big builder then unloads his loans just like all the other lenders did. The homes were overpriced, but those prices served as the "price per square foot" for the other homes because of the commoditization of the homes. They were generally of the same (poor) quality, same size, built at the same time, and on approximately the same lot size.

The Realtors don't even consider "lot size" and focus exclusively on "price per square foot" - a metric that can only make sense when the land is disregarded which can only really be done if all the houses are on approximately the same size lot.

Anonymous said...

In "The Planning Penalty" (PDF) (March, 2006), Randal O'Toole of the Independence Institute's Center for the American Dream wrote:

"Homeownership is the ultimate American dream and the aspiration of families all over the world. Thanks to the post-war boom, U.S. homeownership rates soared from less than 44 percent in 1940 to 62 percent by 1960. Since then, however, the rate of increase has slowed so that only 7 percent more families own their own homes today."

Since the Independence Institute describes itself as "Colorado's Free-Market Think Tank", it's not hard to guess who the villain of O'Toole's story is. Government policies made housing unaffordable. Ironically, both the Institute's president Jon Caldara and research director Dave Kopel live in Boulder; one of the cities whose housing government policies the Independence Institute has constantly criticized for over decades, yet makes Boulder a very desirable place for them to live.

O'Toole's solution?

"As University of San Diego law Professor Bernard Siegan observes, homeowner associations and protective covenants can provide the benefits of neighborhood zoning without the risks of utopian social engineering. University of Maryland public policy Professor Robert Nelson suggests that legislatures allow homeowner associations to opt out of city zoning and take over the planning and management of their neighborhoods. Nelson even suggests that rural landowners form neighborhood associations to allow farmers and landowners, rather than developers or government planners, manage the pace of rural development."
. . .
"In sum, neighborhood zoning, homeowner associations, and sensible financial structures are better tools for dealing with growth than growth boundaries, onerous planning processes, and concurrency requirements or impact fees. States and regions that have not adopted growth-management policies should use these tools instead. States and regions that have adopted growth-management policies should repeal those laws or ordinances and replace them with policies that will not drive up housing costs or produce other unintended consequences."

With the emphasis that the Independence Institute placed on private property rights, I was surprised how little they had studied the issue of homeowners association. They never published a research paper on the most significant trend in the housing market -- and one of the largest threats to individual private property -- in the past 30 years. Their only publication on the subject was the short newspaper editorial "Free-Market Alternatives to Zoning" (February 28, 2009) "Since HOAs are very local and small, participants are often neighbors and hence have incentive to settle disagreements in a civil manner."

But at least O'Toole recognized that

"housing prices are unsustainably high today in any case, and those prices will fall. Eliminating the policies that drove up the housing prices in the first place will make sure that the current housing bubble is not repeated."

Since O'Toole asserts that

"Homeownership helps Americans create wealth, educate their children, and gain self-esteem."

perhaps somebody should study the preservation of property values in areas with those evil "smart-growth" policies vs. the preservation of property values in Libertopian homeowners associations. The past few years should provide plenty of data that debunks a lot of myths across the ideological spectrum.

Anonymous said...

"lots of condo buildings should and will become apartment building in the years to come."

As Professor McKenzie said in the recent Urban Institute video:

"The condominium…it's kind of almost a fictional real estate interest. These things can only exist by statute…Condominiums can only exist where statutes authorize them to exist. So we've had them since about 1960."

And as Steven Siegal wrote back in 2007:

"Before 1960, the condominium form of ownership was unknown in the United States. Beginning in the early 1960s, the states began enacting statues authorizing the condominium form of ownership, principally in response to the enactment of the National Housing Act of 1961, which extended Federal Housing Administration mortgage insurance to the condominium form of ownership. See McKenzie, supra note 2, at 95. By 1967, all fifty states had enacted condominium statutes. Id. at 95–96."
("The Public Role in Establishing Private Residential Communities." Urban Lawyer. Fall 2006. Footnote 23 on page 869.)

Tyler Berding has written extensively about the condominium ownership being an unsustainable form of real estate -- much of which should be required reading for our policy makers (even though much of his root-cause analysis is flawed and self-serving).

His solution, turn the owners into renters, makes sense. Although I think a co-op model might also work.

Since there is no common-law basis for condominiums, condominium ownership can only exist by statute, and was not even legal until 50 years ago, maybe it's time to think about prohibiting condominium ownership -- or at least any new construction of condos. It's a failed legal fiction that has caused a lot of harm to both the individuals involved and the economy as a whole.