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 Phelpsputs 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.
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
Source: Techpole is for 2006, based on Census Industry Data.
Definition based on Tech Pole Index from 2000, published by the Milken
The relationship between homeownership and high-tech industry is even more striking. Our measure of high-tech industry is the tech-pole index originally developed by Ross DeVol of
the Milken Institute. Homeownership is significantly lower in regions
with larger concentrations of high-tech industry. The correlation
is -.25 for all metros and considerably higher (-.61) for large regions.
Homeownership is also significantly lower in more open and diverse
regions. One measure of openness is the share of immigrants or
foreign-born people. Homeownership is negatively associated with the
percentage of foreign-born people: the correlation is -.45 for all
metros and a whopping -.69 for large regions.
Another gauge of openness is the percentage of gay and lesbian people living in a metro. Our measure of gay populations is the gay index
-- initially developed by Dan Black, Gary Gates, Seth Sanders, and
Lowell Taylor -- which we updated based on more recent data.
Homeownership is negatively associated with this gay index measure. The
correlation is -.48 for all metros and -.56 for large metros.
Research by economist Andrew Oswald
has found that homeownership is associated with higher levels of
unemployment. In his research on European cities, he found that a 10
percent increase in homeownership correlated with a two percent
increase in unemployment. Homeownership was a better predictor of
unemployment, Oswald found, than rate of unionization or welfare
benefits. Our findings are in line with his. Regions with higher levels
of homeownership have also experienced worsening unemployment rates
over the past year. The correlation between homeownership and the
change in the unemployment rate from 2008 to 2009 is .23 for all metros.
That brings us to happiness and well-being. A study by University of Pennsylvania economist Grace Wong Bucchianeri found that after controlling for income and demographics homeowners are no happier than renters,
and that homeowners reported considerably higher levels of stress. Our
findings also align with hers: we find that homeownership is
associated with lower levels of happiness and well-being, with a
correlation of -.19 for all metros.
The varied picture of homeownership across metropolitan America
reflects the deep and fundamental forces which are and have been
reshaping its underlying economic geography. In a previous Atlantic article,
I summarized the powerful undercurrents which have been sorting people
and economic activity across U.S. regions. On the one hand, the
variation in homeownership across regions reflects these forces.
Homeownership is more prevalent in smaller regions with more
traditional economic structures, lower levels of human capital, and
lower rates of economic growth, where houses are more affordable. But
it is significantly lower in more affluent knowledge- and
technology-based regions where housing is considerably more pricey.
These high prices, as my own research and that of University of Michigan economist David Albouy show, reflect their higher rates of productivity and higher levels of amenity.
This also has implications for where and how we want to live. If
owning a home is part of your dream, it's far more likely in smaller
regions with less highly charged economies. But if you wish to live in
a superstar city or in a high-tech center, get ready to pay a lot more
or to settle into long-term renting.
America's housing patterns not only reflect these underlying forces,
they may well reinforce them. Places like Los Angeles and New York,
Seattle, Silicon Valley, and Austin not only benefit from diverse,
knowledge-based economies, they have housing systems which contribute
to their flexibility. Lower levels of homeownership mean that fewer of
their residents are locked into mortgage payments and thus can much
more easily adjust to economic downturns. They can more easily
downshift their housing or move to new opportunity. And with more
options for rental housing, these regions can more easily attract new
people -- including young people, those just starting out or starting
over. Regions with higher levels of homeownership like Detroit or St.
Louis have far less flexibility in adjusting to economic downturns.
More of their residents are locked into their homes and are unable to
relocate, whether to less expensive housing nearby or better
opportunities elsewhere. These regions also have smaller rental stocks
to accommodate newcomers. A region's housing market entails more than
providing shelter for residents; it is a key contributing factor to
its flexibility and adaptability to changing economic conditions.
Owing your own home may be a cornerstone of the American Dream, but
it is no longer associated with either greater levels of regional
development or higher levels of regional happiness. Too much of it may
make regions less flexible and resilient in dealing with economic
Next up: later this week, I perform a similar analysis of renting
versus owning, looking in detail at the factors associated with
regional differences in the so-called housing price-to-rent ratio
across the United States.