The Great Homeownership Reset

Market forces are already causing a significant reset in America's housing system -- and a lot quicker than most people imagine.

Earlier this week, I argued that America's penchant for homeownership distorted the economy, and that it makes good economic sense to tilt the balance of homeownership back from its high point of 70 percent to roughly 55 or 60 percent -- about the level found in the most innovative, affluent, and highly skilled regions. The Urban Land Institute projections (PDF) already predict the homeownership level will fall back to 62-64 percent as a result of the downturn, tighter credit conditions, and demographic shifts.

This new study by economists at the New York Fed (via Tracy Alloway of the Financial Times Alphaville) suggests an even bigger homeownership reset is underway. Their analysis takes into account owners who are currently underwater on their homes. The study suggests that those who owe more on their homes than they are worth are likely to turn into renters as time goes on. Take them out of the picture and the "effective rate" of homeownership drops by 5.6 percent, from the current official rate of  67.2 percent to 61.6 percent. That's getting pretty close to the  reset rate of 55-60 percent I suggested. Here's a chart from their paper. (There's also substantial variations by region, as you can see here.)


Source: Andrew Haughwout, Richard Peach, and Joseph Tracy, The Homeownership Gap, New York Fed (via FT Alphaville).

Alloway points to one last bonus figure from the the Fed analysis:

The authors have calculated the additional amount of money Americans would need to save to boost themselves out of negative equity. That is, to close out their existing negative equity and buy a new home in five years time. The sums are pretty staggering: That's an additional $92bn every year for five years. In other words, the US personal savings rate would have to increase about 0.8 percentage points, to 5.1 per cent. So that's saving an additional $1,222 a month, or renting. What price the American dream, America?

That's the question President Obama and his economic team need to be asking now.

Presented by

Richard Florida is Co-founder and Editor at Large of CityLab.com and Senior Editor at The Atlantic. He is director of the Martin Prosperity Institute at the University of Toronto and Global Research Professor at NYU. More

Florida is author of The Rise of the Creative ClassWho's Your City?, and The Great Reset. He's also the founder of the Creative Class Group, and a list of his current clients can be found here

Saving the Bees

Honeybees contribute more than $15 billion to the U.S. economy. A short documentary considers how desperate beekeepers are trying to keep their hives alive.

Join the Discussion

After you comment, click Post. If you’re not already logged in you will be asked to log in or register.

blog comments powered by Disqus

Video

How to Cook Spaghetti Squash (and Why)

Cooking for yourself is one of the surest ways to eat well.

Video

Before Tinder, a Tree

Looking for your soulmate? Write a letter to the "Bridegroom's Oak" in Germany.

Video

The Health Benefits of Going Outside

People spend too much time indoors. One solution: ecotherapy.

Video

Where High Tech Meets the 1950s

Why did Green Bank, West Virginia, ban wireless signals? For science.

Video

Yes, Quidditch Is Real

How J.K. Rowling's magical sport spread from Hogwarts to college campuses

Video

Would You Live in a Treehouse?

A treehouse can be an ideal office space, vacation rental, and way of reconnecting with your youth.

More in Business

From This Author

Just In