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Home ownership may be a huge part of the American Dream, but it will become less of a reality for Americans in the years to come.
The Urban Institute released an in-depth report Tuesday based on a longitudinal study of household formation and homeownership rates from 2010 to 2030.
Before 1990, homeownership rates in the US hovered around 64 percent and then rose steadily until 2006, when the rate reached 67.3 percent. But after the housing crisis hit, rates steadily fell until reaching 63.6 percent most recently, according to the latest American Community Survey. The Urban Institute believes the homeownership rate will continue to fall, declining to 61.3 percent by 2030.
The predictions in the report are based on 2014 Census population projections for 2020 and 2030, as well as projections based on recent American Community Survey data.
The report also predicts that once Millennials, those currently aged 20 to 35, reach their prime homebuying years in 2030, only 38 percent will own homes. By comparison, 46 percent of Baby Boomers did so in the 1990s.
There are demographic and economic trends to consider. In looking at the headship rate, or the share of people in each age group who own or rent a home, the report’s authors found the headship rate of people younger than 35 “declined between 1980 and 2013 to levels last seen in about 1960.” In other words, because of the stalling economy and unemployment, many young people have been unable to afford moving out of their parents’ home.
The study also noted that rapidly rising rents and low vacancy rates have had an impact on the rate at which young people form households (more on rising rents and Millennials that live with a parent).
It’s not a trend that came about recently either, since “stagnant wages and high unemployment for young adults did not emerge in 2007 with the housing crisis; on the contrary, they have characterized the economy since 2000, along with rising poverty rates and increasing housing cost burdens.”
This has delayed both headship and homeownership for many Millennials, especially as credit remains tight. It’s also a generation that is diverse in a myriad of ways – by race, national origin, and through inequalities in income, education, and access to resources from parents and grandparent .
Due to changing demographics, the overwhelming majority of new households formed from 2010 to 2030 will be non-white. Of the 11.6 million net new households that will form from 2010 to 2020, 77 percent will be non-white while 88 percent of the 10.4 million new households that will form from 2020 to 2030 will be non-white.
“Because non-white groups have lower homeownership rates than whites, these household formation projections are the main driver of our homeownership forecasts,” wrote the report’s authors.
“More than one-third of the 13 million new renters between 2010 and 2030 will be Hispanic and one-quarter will be white. Almost one-quarter will be African American, and 15 percent will be other racial or ethnic backgrounds.”
The study notes that African Americans were hit much harder in the financial crisis than any other racial or ethnic group and their homeownership rate has since dropped more steeply than their white and Hispanic counterparts.
The Urban Institute is calling for new initiatives to address the erosion of homeownership for African Americans, since home ownership figures so heavily into the wealth and income of individuals and high rents can “undermine financial stability and hinder savings.”
Between 2010 and 2013, some 22 million new households are expected to form with 59 percent expected to be renters, not owners.
“This change will create a surge in rental demand from now until 2030 that we are unprepared to meet. We need to encourage building of more rental housing suitable for all age groups to accommodate this surge,” said the report.