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«Contesting the streets Volume 18, number 1 • 2016 U.S. Department of Housing and Urban Development | Office of Policy Development and Research ...»

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and greater economic optimism), while slowing in others. As shown in exhibit 1, the cohort passing to ages 30 to 34 from ages 25 to 29 in each interval made the greatest gains in the interval of 1995 to 2000 (20.2 percentage points added to their homeownership rate). The pace of accumulation had quickened since 1985, but it actually slowed during the housing bubble (16.2-point gain) and slumped badly during the recession interval (7.6-point gain). We project a 10.0-point gain in this age interval through 2017, after which we project a 14.8-point gain under Scenario A and a 12.4-point gain under Scenario B. Scenario C assumes the same gain as in the recession (7.6 points in this age interval). The same pattern of acceleration and deceleration of homeownership accumulation in the different time periods is played out synchronically across successive age groups. In sum, exhibit 1 shows the dynamics of cohort gains that are greater when passing through younger than older age groups, and that are greater in some time intervals than others, with anticipated postrecession recoveries that vary by scenario.

An alternate view of the projection results and actual data for preceding time periods is the age cross-section of homeownership rates recorded or projected in different periods. These projected rates emerge from the cohort modeling that launches from the 2012 observed data and applies the Scenario A schedule of incremental advancement as each cohort passes through successive age groups in the future. (For greater clarity, some of the older age groups are not shown in the exhibit.)

Cityscape 137Myers and Lee

Noteworthy in exhibit 2 is the upward bulge in homeownership rates that occurred in all ages younger than 45 during the late 1990s and the 2000s’ housing bubble. This bulge was followed by a sharp drop in these age groups between 2007 and 2012, creating a downward “notch” in the time series of each age group. The notch broadens in middle age groups to include 2017 and 2022 in our projections because cohorts entering the age in 2017 and 2022 arrive bearing a diminished amount of homeownership that accrued during the recession when they were younger. In effect, cohort momentum carries the losses of the past into older age groups in later periods. According to these projections, the homeownership rate will continue to decline at ages 45 to 49 until 2032 and at ages 55 to 59 until 2042. The rate may also decline until 2022 at ages 35 to 39, but cohorts passing into this age group could rapidly respond to new policies and more favorable economic incentives.

Effects of the recovery toward normalcy in the housing market, anticipated after 2017, are greatest for the youngest age group because entering cohorts bear less handicap of historical legacy. The homeownership status of young cohorts is most uncertain because they are most responsive to current economic incentives and policies, as witnessed with the new housing programs after World War II, but such are unknown in future years. Unexpected policy changes or major new economic opportunities could once again accelerate the pace of homeownership attainment of young people relative to those who are older.

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50.0 40.0 30.0 20.0 10.0

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Racial change is a demographic factor of which many are aware (Frey, 2014), and it has the effect of slowly declining the homeownership rate. On average, homeownership rates are much higher for non-Hispanic White people than for others. And the White share of the population will decline, for example, at ages 25 to 29, from 56.8 to 42.3 percent of the population between 2014 and 2050, according to Census Bureau projections. If race-specific homeownership rates at this age are held constant at their level observed in 2014, and only racial shares of the population are allowed to shift, the homeownership rate at this age would decline by 2.1 percentage points over 36 years. To account for differences in household formation that underlie the homeownership rate (Yu and Myers, 2010), we have elected to assume an even greater racial shift effect on homeownership of 3.6 percentage points in our new cohorts entering young-adult age groups. Based on this long-term expected decline in the young homeownership rate due to racial mix, we impose a slow homeownership rate decline of 0.1 percentage point per year on the young age groups, and that begins to dominate after the presumed recovery period from recession-related decline. For older ages, the cohort structure of the model already embeds actual racial composition of the existing cohorts. Racial shift occurs at older ages through the aging of these existing cohorts and their replacement of older cohorts that are relatively more White.

The bottom line questions are these: How do all these changes add up for the overall homeownership rate? Is it possible that the U.S. homeownership could decline 20 points or by some other large amount by 2050? Our model may shed light on this possibility. Beginning with the 2014 National Population Projections produced by the Census Bureau, we populate the size of each cohort, run it through household formation and homeownership schedules projected for that cohort, aggregate all cohorts in each period, and then compute a total homeownership rate for each period.11 The findings on the overall U.S. homeownership rate are portrayed in exhibit 3, showing both the historical trend since 1950 and our three projections stretching out to 2050.

Our most dire projection, Scenario C, assumes zero recovery will occur from the slow homeownership acquisition during the Great Recession, stunting overall homeownership accumulation to a greater degree each passing year. Using these assumptions, the homeownership rate is driven down to 43.0 percent by 2050, and this rate would be even lower, by 3.7 percentage points, if the aggregate population had not shifted its weight to older age groups that have higher ownership rates. Scenario C indicates what might be required to approach a 20-point decline in the national homeownership rate.

A more realistic model, Scenario B, produces a national homeownership rate of 54.7 percent, falling another 2.6 percentage points lower if not for population aging. This outcome results from following the assumption of only halfway recovery between the slow homeownership gains by cohorts in the recession and the average pace of the 20 years preceding the Great Recession.

Scenario A is also a realistic possibility for the future, producing a national homeownership rate of 60.1 percent in 2050, falling to 58.0 percent, except for the 2.1-percentage-point boost due to population aging. This model assumes a three-fourths recovery from the pace of housing progress of each cohort during the recession to the average pace of the 20 years before. The question We modeled homeownership after first translating population into households or, alternatively, by modeling homeowners per capita. In communicating our analysis for present purposes, however, we express findings in terms of the conventional homeowners per household.

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might be—Why should we not expect a full recovery to what was normal before? A multitude of factors make housing acquisition likely to be more difficult than earlier, ranging from higher prices and faltering incomes to weaker availability of credit and an uncertain future structure of mortgage finance. Increasing immigration in future decades may also slow gains in the future but to a lesser degree than sometimes assumed, given the rapid improvements in homeownership attainment among Latinos over time, even net of income gains (Myers, Megbolugbe, and Lee, 1998) and given the greater future weight of Asians who have higher prospects for homeownership. Overall, caution is advised in assuming that homeownership trends will fully bounce back to those of an easier time.

From Projections to Policies Scenarios A and B should be considered both realistic and probable. Further research directed toward their assumptions could help us better understand the sensitivity of homeownership rates to alternative factors, as referenced previously. Policymakers can learn from the implied outcomes 140 Point of Contention: Declining Homeownership Cohort Momentum and Future Homeownership: The Outlook to 2050 emerging from our projection model built on the track records of the past and the model’s emphasis on the future information implied by cohort momentum. The next step is to choose the most likely assumptions and make judgments about most likely outcomes in order to transform this modeling from a set of alternative projections to a forecast.

Whether maintaining a higher homeownership rate is a desired goal for the nation is not addressed in this analysis. Demographic considerations will be paramount. What is to be done about the eventual, massive sell-off by the Baby Boomer homeowners who (or whose estates) will all be looking for buyers among the younger generation (Myers and Ryu, 2008)? How should the growing diversity of the younger generation be managed; do we help neglected minorities to achieve more equal access to homeownership, and how necessary is that for enough young people to qualify to purchase 54 million homes from so many Baby Boomer and older sellers? Following public discussion and debate about these factors and others, we ultimately require a policy choice of which path is preferred, followed by development of a plan for how to ensure the achievement of that outcome over the other possibilities (Isserman, 1984). Projections cannot make policy choices or devise strategic plans, but counting things up in the most plausible way possible is an essential part of the evidence base.

Conclusion Cohort momentum has a powerful impact in homeownership accumulation, and the effects of the Great Recession are projected to echo forward for decades. Yet we also find enormous stability built into the nation’s homeownership rate because of the aggregation across many cohorts and with increasing weight placed on older ages that typically have high accumulation.

The overall conclusion is that massive change in the homeownership rate appears highly unlikely, unless the nation were to fall unintentionally into perpetual recession for 35 years, as in Scenario C, or, more radically, by intention, if the federal government rolled back its Great Depression-inspired housing policy innovations and thus erased much of the gain in homeownership after 1940 (Chambers, Garriga, and Schlagenhauf, 2014). Neither of these events is likely to occur.

Important questions for research should be addressed around key assumptions in our projection model, which might inform the choice between the two realistic scenarios, A and B. First, how much can now-middle-aged Generation X households bounce back and make up for deficits sustained when their cohort was 10 to 15 years younger? Second, how much will the diverse Millennials recover from the slow start in their economic careers and translate that into accelerated accumulation of homeownership as they move into middle-age years? Finally, how might policy be designed to assist these groups and move the national homeownership more on the path of Scenario A, or better, than Scenario B? The future ahead of homeownership, because it is quasicumulative, is built on the momentum of today, not easily modified by last-minute programs to correct deficiencies at some distant date, and certainly not wished for out of whole cloth. The projections offered here provide an outlook to build on.

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Acknowledgments The authors thank Greg Ingram and the Lincoln Institute of Land Policy for their early encouragement and support for developing a post-Great Recession housing projection model.

Authors Dowell Myers is a professor of policy, planning, and demography in the Sol Price School of Public Policy at the University of Southern California.

Hyojung Lee is a doctoral candidate in the Sol Price School of Public Policy at the University of Southern California.

References Chambers, Matthew, Carlos Garriga, and Don E. Schlagenhauf. 2014. “Did Housing Policies Cause the Postwar Boom in Home Ownership?” In Housing and Mortgage Markets in Historical Perspective, edited by Eugene N. White, Kenneth Snowden, and Price Fishback. Chicago: University of Chicago Press: 351–385.

Drew, Rachel Bogardus, and Christopher Herbert. 2013. “Post-Recession Drivers of Preferences for Homeownership,” Housing Policy Debate 23 (4): 666–687.

Emmons, William R., and Bryan J. Noeth. 2014. “Housing Crash Continues To Overshadow Young Families’ Balance Sheets,” In the Balance (February): 1–6.

Fetter, Daniel K. 2013. “How Do Mortgage Subsidies Affect Home Ownership? Evidence From the Mid-Century GI Bills,” American Economic Journal: Economic Policy 5 (2): 111–147.

Frey, William H. 2014. Diversity Explosion: How New Racial Demographics Are Remaking America.

Washington, DC: The Brookings Institution.

Gabriel, Stuart, and Stuart S. Rosenthal. 2015. “The Boom, the Bust, and the Future of Homeownership,” Real Estate Economics 43 (2): 334–374.

Goodman, John L., Jr., and Joseph B. Nichols. 1997. “Does FHA Increase Home Ownership or Just Accelerate It?” Journal of Housing Economics 6 (2): 184–202.

Isserman, Andrew. 1984. “Projection, Forecast, and Plan,” Journal of the American Planning Association 50 (2): 208–221.

Joint Center for Housing Studies of Harvard University. 2015. The State of the Nation’s Housing 2015.

Cambridge, MA: Joint Center for Housing Studies of Harvard University.

Kolko, Jed. 2014. “The Recession’s Lost Generation of Homeowners Isn’t Millennials—It’s the Middle-Aged,” Trulia blogpost. http://www.trulia.com/trends/2014/07/recessions-lost-generation/.

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Mankiw, N. Gregory, and David Weil. 1989. “The Baby Boom, the Baby Bust, and the Housing Market,” Regional Science and Urban Economics 19 (2): 235–258.

McCue, Daniel, George Masnick, and Chris Herbert. 2015. Assessing Households and Household Growth Estimates With Census Bureau Surveys. Working Paper W15-5. Cambridge, MA: Joint Center for Housing Studies of Harvard University.

Myers, Dowell. 1999. “Cohort Longitudinal Estimation of Housing Careers,” Housing Studies 14 (4): 473–490.

Myers, Dowell, and Hyojung Lee. 2016. “Demographic Change and Future Urban Development.” In Land and the City, edited by George W. McCarthy, Gregory K. Ingram, and Samuel A. Moody.

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