Over the past year, we’ve heard a consistent drumbeat about how homeownership rates are at an all-time low in the United States. And it’s not just the United States. Rather, it’s been a fairly consistent trend across many developed economies.
Why that is, or the issues that result, are topics we hope to explore in future blog posts. But before we can talk about any of that, we need to understand something extremely mundane and yet incredibly important: what homeownership means and how it is measured.
How the Census Measures Homeownership
When news outlets quote homeownership rates, they are typically referring to the rates produced by the US Census Bureau. The Census Bureau calculates the homeownership rate as follows:
- Owner-Occupied Households: Homes that are being occupied by the person who owns the home.
- Renter-Occupied Households: Everything else.
According to the last Census report, 64% of homes are occupied by the person who owns the home. But this national average masks large geographic disparities. In West Virginia, 73.4% of homes are occupied by the person who owns the home. In San Francisco however, only 35% of homes are occupied by the person who owns the home. In New York, only 31% of homes are occupied by the person who owns the home.
Pretty low right? Sure. But the real story here is that it isn’t low enough.
The Homeownership Rate is Misleading
When people think of the homeownership rate, what they intuitively think of is the percentage of people that own a home. In short, they think of all the people in the United States and then think about the percentage of adults that had the financial resources to buy a home. But this intuitive definition of the “homeownership rate” is not how the datapoint is measured.
- Intuitive Definition: How many adults own a home? To figure this out, ask this question to every adult/couple, then count how many of them own a home.
- Census Definition: How many homes are occupied by the person who owns the home? To figure this out, ask this question to every house, then count how many houses are owner-occupied.
Where the Two Definitions Diverge
- What happens when 5 adult roommates live together in a house? Well, under the census definition, they only count as one renting household.
- What happens when an adult has to live at home with his/her parents? Well, they all live in an owner household.
- What happens when an adult rents a basement from a homeowner? Well, they all live in an owner household.
These are not small impacts. Earlier this year, the Resolute Foundation published a report calculating these effects. They found that in the UK, 64% of homes were occupied by the person who owns the home (the census definition), BUT, when they calculated the homeownership rate using the intuitive definition, they found that only 51% of families own homes. That is a 13% gap between the census definition and the intuitive definition!
We replicated some of their analysis and found that similar results for San Francisco.
Is it possible that only 26% of families own homes in San Francisco?
Almost certainly. Our estimate is conservative. To simplify the analysis, we made the assumption that all co-living situations involve only one other roommate. It is very likely that the intuitive homeownership rate in San Francisco is somewhere between 20% and 27%. This means that a super majority of adults are renters — because many of them cannot afford (or have the down payment to access) an entire housing unit on their own.
To address a problem, we must first agree on a basic set of facts. The census homeownership rate has historically been a very good guide for understanding the landscape of renters and owners, but it does not paint the whole picture nor reflect the realities of today's housing trends in expensive cities. In particular, it entirely ignores the phenomena that more young couples are sharing housing units because it is an economically necessity to do so. Similarly, it also entirely ignores the fact that more young adults are being forced to live at home or in in-law units out of economic necessity.
When working adults are forced to co-habitate, only landlords can thrive. Co-habitants cannot pool their buying power to share in homeowner subsidies and the rising tide of increasing home prices.
Despite our efforts here, the reality is that the intuitive rate of homeownership remains unknown -- and what does not get measured, will not get managed.