'America Needs to Get Over Its House Passion'

On Morning Edition today, I discussed the merits of owning versus renting your home with host Steve Inskeep. The ideal of homeownership is deeply ingrained in the American psyche. For the past half century, owning a home of your own has been the veritable cornerstone of the American Dream. We more or less take it for granted that homeownership is a good thing. Homeownership, it is commonly thought, goes along with higher incomes. It causes people to be more diligent, hard-working, and productive. It leads to stable families, stable communities, and higher levels of happiness and well-being.

But, a whole slew of recent research suggests that there are considerable costs as well as benefits to owning your home. A 1998 Federal Reserve Bank of Dallas study, undertaken well before the boom and bubble, provided detailed empirical evidence of America's over-investment in housing. Yale University's Robert Shiller, the world's leading student of bubbles, housing, and otherwise, found that from "1890 to 1990, the rate of return on residential real estate was just about zero after inflation." Or as Nobel prize-winning Columbia University economist Edmund Phelps puts it: "It used to be that the business of America was business. Now the business of America is homeownership." He adds, "To recover and grow again, America needs to get over its 'house passion."' I delve into these issues in greater depth in The Great Reset.

My conversation with Inskeep got me interested in trying to better understand and explain the variation in homeownership across America and also to see to what degree these differences are tied to social and economic factors that are reshaping its economic geography. We use a simple gauge of homeownership -- the percentage of owner-occupants in a region. Our data are from the 2008 American Community Survey and cover 339 U.S. metropolitan regions.


The map (immediately above) -- prepared by the Martin Prosperity Institute's Zara Matheson -- shows the striking variation in the rate of owner-occupancy across U.S. metros. On average, roughly 68 percent of Americans who live in metro areas own their own homes. But the variation ranges from more than 80 percent (81.7 percent) on the high-end to less than half (49.3 percent) on the low end. Among large metros -- those with more than one million people -- more than seven in 10 people own their homes in Minneapolis-St. Paul (74.2 percent), Detroit (74.1 percent), St. Louis (72.9 percent), Birmingham (72.8 percent), Pittsburgh (71.7 percent), Philadelphia (70.5 percent), Louisville (70.4 percent), and Tampa (70.3 percent). On the other hand, the lowest rates of homeownership are found in Los Angeles (51.9 percent), greater New York (53.7 percent), San Diego (56.7 percent), San Francisco (57.6 percent), Las Vegas (58.9 percent), Austin (60 percent), and San Jose (60.7 percent). College towns also have relatively low rates of homeownership -- like, for example, College Station  (52.1 percent), Ithaca (52.9 percent), Ames (55.9 percent), and Corvalis (56.1 percent).

But what might underlie these patterns? What factors might be associated with regional differences in homeownership? And, more importantly, in what ways does homeownership reflect the broader forces that are reshaping America's regions?

With help from Charlotta Mellander, I was able to take a reasonably close look. We performed a simple correlation analysis and ran a series of scatter-graphs between homeownership and key regional demographic and economic factors. We did this for all 300-plus U.S. metros and for the 46 large metros (again, those with more than one million people). As usual, I note that our analysis points to association between variables only. It does not imply causation, and other factors may complicate the picture. Our findings are interesting and challenge the conventional wisdom on several fronts.


First of all, homeownership is much more common where houses are cheaper. We found a negative correlation between owner-occupancy and housing prices. The correlation was -.37 for all metros and a whopping -.67 for large metros.

Even more striking perhaps is the relationship between homeownership and the level of economic development. The association here is negative. That is, more people own their own homes in places where incomes, wages, and economic output are lower. Homeownership is negatively related to economic output (which we measure as gross metropolitan product per person). The correlation is -.16 for all metros and -.28 for large metros. It is also negatively related to incomes with a correlation of -.36 for large metros. And, homeownership is negatively related to wages: The correlation is -.18 for all metros and even higher for large metros (-.35).

Smart regions have higher levels of income, economic output, and overall well-being. But homeownership is substantially lower in smart regions, whether measured by the level of human capital; the share of creative, knowledge-based, and professional occupations; or the level of technology-based industry. Homeownership is negatively related to human capital (measured as the share of metro population with a bachelor's degree or higher): the correlation being -.26 for all metros. It is also negatively related to the creative class, with a correlation of -.19 across all metros.

Homeownership rates are higher, however, in communities with a higher percentage of traditional blue-collar working-class jobs. The correlation between owner-occupancy and working class jobs is .36 for all metros.

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

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