Raising America’s Homeownership Rate

Conventional wisdom dictates that homeownership builds wealth and that it is an indicator of financial health. Therefore the homeownership rate in America is an oft-used measure of the country's fiscal wellbeing. Don Layton, Senior Industry Fellow at Harvard's Joint Center for Housing Studies and former Freddie Mac CEO points this out in a paper entitled “The Homeownership Rate and Housing Finance Policy: Part 1 – Learning from the Rate’s History" and adds that, for this reason, the homeownership rate "holds an exalted place among policymakers in Washington."

Thus, he says, policymakers tend to find ways to push the homeownership rate higher. These conditions, he says, also sometimes lead to the implementation of programs that, unfortunately, fail to elevate the rate. His paper, part one of two, is a step toward something he says needs to happen—that is, "step back, take stock, and look for fresh ideas" —in order to elevate the homeownership rate and the benefits that indeed go hand-in-hand with owning a house.

"This single statistic [homeownership rate]—currently running about 65%–is regarded as one of the most important comprehensive measures of how well the country’s socioeconomic system is 'delivering the goods' for the typical American family," Layton wrote "A high homeownership rate reflects that many families have income large enough not only to cover monthly living costs but also to generate enough cash surplus to save for a downpayment and then to sustain homeownership. It also indicates that the cost of purchasing a house and financing a mortgage on it is affordable. In addition, homeownership is regarded as causing an improvement in the quality of life of a typical family."

Layton's paper reviews the history of the country's homeownership rate over roughly the past 130 years, he explained, the objective being to establish a foundation for determining what policy choices, especially in the field of housing finance, would likely be successful in finally raising the rate, which— through decades of the government’s implementing various programs in housing finance aimed at increasing the sustainable rate of homeownership—remains today at almost exactly the level achieved over 50 years ago.

He writes:

Homeownership records that I have been able to access go back to 1890. This date is closer to the 1776 founding of the country than it is to today ... a simple visual inspection of the homeownership rate plus simple analysis shows that it has very stubborn macro-level stability (i.e within just one or two percentage points) at about 46.5% before the Great Depression and then at 65% after 1970. This is a very different perspective than the micro-level focus that I found dominated everyday Washington policy discussions. And this big picture viewpoint gives insight, I believe, that will help determine what might and might not be successful in the future to sustainably and materially increase the rate.

Layton also promises to explore in the second part of his paper the proposal made by the Biden campaign to establish a large and generous downpayment assistance program with Federal government funding. "That proposal, which represents a change in the thinking that has dominated policymaking for many years, does indeed have the potential to be a major component of a successful effort to, at long last, materially and sustainably raise the homeownership rate above its long-standing 65% level.

Following an in-depth examination of various policies and their effects, all of which is available at JCHS.harvard.edu Layton adds:

... it is clear that business-as-usual approaches aren’t enough. Instead, there will have to be policies that are more creative and large-scale, not just an extrapolation of the past, and they will likely require funding from the federal budget rather than being based upon unfunded mandates and cross-subsidies. Those policies will be addressed in Part 2.