Monday, August 25, 2014

NAHB: To Rent or Buy is Not an Either/Or Decision

A recent article in U.S. News & World Report by NAHB economist Robert Dietz shows why housing policy should support both home owners and renters. View the summary below.

Though public opinion polling indicates that most renters want to become home owners, the economic fallout from the Great Recession has produced a surge in rental demand and sluggish demand for homeownership, particularly among first-time buyers. The result has been a declining homeownership rate (64.8% for the second quarter of 2014), even as other housing indicators have improved.

While achieving ownership has been delayed for many younger families, over the last few years it has become relatively more common to hear pundits argue that as a society we should pull back our support for homeownership. Such discussions typically involve income and other economic-based descriptions of home owners and renters as if these groups or people were distinct and fixed classes.

The Circle of Homeownership
These contrasts are misleading. The lifecycle of homeownership has important consequences when examining differences between home owners and renters. Using government data and taking several factors into consideration – age, marital status, income, children, space requirements and structure – it becomes clear that most people will be renters and home owners during different stages of their lives.

First, home owners as a group are typically older than renters. Census data shows that the number of renters exceeds home owners for age groups younger than 35 but that the homeownership rate increases with age, rising from 59% for those in the 35-to-44 age bracket and equaling or exceeding 70% for those aged 45 to 84 years.

This makes sense given the typical pattern of an individual leaving school, renting in order to accumulate savings, and then purchasing a first home.

Since home owners as a group tend to be older, they also have higher incomes. The data reveal that the median household income of renters was $31,888 in 2012, compared to $65,514 for home owners. A considerable part of this income difference is due to age.

And because homeowners tend to be older, they are also more likely to be married. According to the Census data, 60% of home owners are married couples, compared to only 27% of renters.

Married couples are also more likely to have children present in the home, and therefore need more room and space. Thus, it should come as no surprise that Census data reveals that 84% of the nation’s single-family homes are comprised of home owners while multifamily housing tends to be renter dominated.

One-Size Policy Does Not Fit All
All of these factors produce the local and regional variations in homeownership across the nation. For example, urban dominated New York has the lowest homeownership rate among states at 54% (and the District of Columbia is lower still at 42%), while states with older populations in the Northeast and Midwest have higher homeownership rates.

These data highlight that policy debates should not frame renters and home owners as distinct classes. Support for the development of rental housing is an important social goal to maintain safe, affordable and decent housing for those for whom renting is the best choice. And preserving our nation’s commitment to homeownership is needed given the well-documented social and private benefits that homeownership produces for families and communities.

It would be a mistake to weaken policy support for either form of housing, as the result would be diminished housing policy overall.

View the full U.S. News & World Report story.

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