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articles about “Homeownership

Homeowners and Renters … Together?

Homeowners and renters are much more likely to be neighbors in Florida than in the New York City area. The housing bust brought owners and renters closer together in most markets as many single‐family homes became rentals.

Jed Kolko, Chief Economist
August 27, 2014

Most neighborhoods have both renters and homeowners, and that mix depends on the housing stock. Most single‐family homes are owner‐occupied and most multi‐unit buildings are rentals. But there are plenty of exceptions. High‐rise neighborhoods often have both condo owners and apartment renters. And suburban areas with mostly owner‐occupied single‐family homes often have at least a few renters sprinkled in.

Whether renters and owners live together or apart matters for two reasons. First, when every neighborhood has both renters and owners, the choice of which neighborhood to live in isn’t limited by whether you rent or buy. But in a city where neighborhoods tend to be renter‐only or owner‐only, your choices are limited. In particular, people who can’t afford to buy a home have fewer neighborhoods to choose from when looking for a rental. Second, people care who their neighbors are. That’s especially true for homeowners. When they’re asked what’s important to them about their neighbors, they say they care most about whether the people who live near them are also homeowners, according to a September 2013 Trulia survey.

Renters and homeowners are more integrated—which is to say less segregated—in some metros than in others. But overall segregation dropped between 2000 and 2010, mostly because the housing bust turned some single‐family homes in predominately owner‐occupied neighborhoods into rentals.

Where Renters and Owners Mix – And Where They Don’t
To analyze how integrated or segregated renters and owners are in different metros, we used what’s called a dissimilarity index, which is a measure of how evenly two distinct groups are distributed across a geographic area. For each metro area, this index ranges from 0 to 1:

  • 0 indicates a completely integrated metro that has the same mix of renters and owners in every neighborhood.
  • 1 indicates a completely segregated metro where every neighborhood is either all owners or all renters.

The index equals the percentage of owners or renters in a metro that would have to move to a different neighborhood for all neighborhoods to have the same mix of owners and renters. (Throughout this post, “neighborhood” means Census tract. See note below.)

Among the 100 largest U.S. metros, the top four where renters and owners are most integrated are in

Florida. In the top three—Lakeland‐Winter Haven; North Port‐Bradenton‐Sarasota; and Palm Bay-Melbourne‐Titusville—fewer than 30% of households would have to move to equalize the mix of owners and renters across all neighborhoods. Overall, the 10 metros where renters and owners are most integrated tend to be in the Sunbelt.

Top 10 Metros Where Owners and Renters are Most Integrated
# U.S. Metro Dissimilarity index of owners vs. renters
1 LakelandWinter Haven, FL 0.28
2 North PortBradentonSarasota, FL 0.29
3 Palm BayMelbourneTitusville, FL 0.29
4 Cape CoralFort Myers, FL 0.31
5 Bakersfield, CA 0.32
6 Dayton, OH 0.32
7 Jacksonville, FL 0.32
8 Little Rock, AR 0.32
9 Charleston, SC 0.33
10 Greenville, SC 0.33
Note: among 100 largest metros. The dissimilarity index ranges from 0 to 1. A lower dissimilarity index means owners and renters are more integrated (i.e. less segregated). 

The large metros where owners and renters are most segregated are clustered in the Northeast and Texas. Eight of the 10 most segregated metros are within a three‐hour train ride of New York City. Newark, NJ is the most segregated. In fact, more than half of the households living there would have to move to a different neighborhood in order to equalize the mix of renters and owners across neighborhoods.

Top 10 Metros Where Owners and Renters are Most Segregated
# U.S. Metro Dissimilarity index of owners vs. renters
1 Newark, NJ‐PA 0.53
2 Fairfield County, CT 0.48
3 Dallas, TX 0.47
4 New York, NY‐NJ 0.47
5 New Haven, CT 0.46
6 Hartford, CT 0.46
7 BethesdaRockvilleFrederick, MD 0.46
8 Washington, DC‐VA‐MD‐WV 0.46
9 EdisonNew Brunswick, NJ 0.46
10 Austin, TX 0.45
Note: among 100 largest metros. The dissimilarity index ranges from 0 to 1. A higher dissimilarity index means owners and renters are less integrated (i.e. more segregated). 

Looking across all metros, owners and renters are more likely to be integrated in smaller, lower population‐density places. Owner‐renter integration is also higher in vacation areas. Among smaller metros—those ranked 101 to 250 in population—renters and owners are most integrated in two popular vacation areas: Hilo, HI (dissimilarity index of 0.19) and Lake Havasu CityKingman, AZ (0.21). In contrast, owners and renters are most separate in college towns because off‐campus student rental housing is often clustered in particular neighborhoods. (Dormitory residents aren’t considered households and are therefore excluded from this analysis.) The most segregated smaller metros are Ann Arbor, MI (0.53); Gainesville, FL (0.53); and College StationBryan, TX (0.50)—all of which are college towns.

The Housing Bust Brought Renters and Owners Closer Together
In 70 of the 100 largest U.S. metros, the dissimilarity index fell between 2000 and 2010, which is to say renters and owners became more integrated. Integration increased most in Las Vegas, Phoenix, and North PortBradentonSarasota, FL—metros where home prices fell 50% or more during the housing bust. In fact, between 2000 and 2010, the change in renter‐owner integration was strongly correlated with the severity of the housing bust.

The housing bust and foreclosure crisis led to an overall shift from owning to renting and a decline in the homeownership rate. This shift affected renter‐owner integration primarily because many foreclosed homes were bought up by investors and rented out. As a result, fewer neighborhoods were overwhelmingly owner‐occupied in 2010 than they were in 2000. To see this, we looked at the distribution of neighborhoods by renter share (weighted by neighborhood household count). For the U.S. overall, the share of neighborhoods that were nearly all owner‐occupied (i.e., 0‐10% renters) dropped from 9.4% in 2000 to 7.4% in 2010. At the same time though, the share of overwhelmingly rental neighborhoods (i.e., 90‐100% renters) didn’t increase. Rather, the share of more evenly mixed neighborhoods increased.

When we look at the metros hit hardest by the housing bust, it’s clear that the foreclosure crisis had the biggest impact on traditionally owner‐occupied neighborhoods. In the 15 large metros where home prices fell at least 40% from peak to trough, the share of neighborhoods that were nearly all owneroccupied (i.e., 0‐10% renters) dropped from 13.5% in 2000 to 5.9% in 2010. In other words, the likelihood of living in a neighborhood with very few renters dropped by more than half in hard‐hit metros.

Thus, the housing bust reduced the segregation of owners and renters. Integration increased the most in housing markets with severe price declines, a worse foreclosure crisis, and bigger increases in single-family rentals. As a result, neighborhoods with a renter share below 10% became rarer, especially in hard‐hit metros. That’s good news for people who have been shut out of homeownership. They can now find rentals in more neighborhoods than they could before the bust. But for homeowners who want other homeowners as neighbors, it’s gotten harder to find neighborhoods that are nearly renter‐free.

Note: the dissimilarity index is calculated for each metro based on the renter‐owner mix in all Census tracts within that metro. The data come from the 2000 and 2010 decennial Census. The 2008‐2012 American Community Survey also reports owner and renter households by Census tract, but covers five years that on average are no more current than the 2010 decennial Census. Furthermore, the ACS is a sample, while the decennial Census is a complete count of households.

Dissimilarity indexes can be used to measure the integration or segregation of any two distinct groups and are often used in research about racial segregation. For formulas and discussion of dissimilarity indexes and other measures of integration or segregation, see here and here.

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Cutting Housing Costs When Financial Hardship Strikes

If forced to spend less on housing, people would rather change where they live than whom they live with. Downsizing is the #1 way people would reduce their housing costs. Furthermore, renters are significantly more willing to move or get a roommate than homeowners are.

In good economic times as well as in bad, financial hardship can always strike. And when it does, people might have to cut back on housing, which is typically the largest household expense. However, cutting housing costs involves hard tradeoffs: moving can be expensive and a hassle, and living with family, friends, or strangers can be a challenge. To understand how people might make these tradeoffs, we asked 2,048 Americans in late March and early April 2014 the following question:

“If you experienced a major financial hardship (e.g., lost your job, unexpected medical bills), and you needed to cut back significantly on your housing costs, which of the following would you most likely do? Please select all that apply.”

Here’s what they told us.

Everyone’s Top Cost-Cutting Strategy: Downsizing
Facing financial hardship that required cutting back on housing, nearly 2 in 5 people (38%) would move to a smaller home — more than any other option by a wide margin. In fact, twice as many people would prefer downsizing than the next most popular actions of (1) renting out part of their home to a roommate or housemate or (2) moving to a more affordable neighborhood. Far fewer people would take the more radical actions of living in their car or not paying the rent or mortgage.

How Would You Cut Your Housing Costs If Hit With A Major Financial Hardship? Share
Move to a smaller home/apartment 38%
Rent out part of my home to a roommate/housemate 19%
Move to a more affordable neighborhood in the same city, metro area, or region 19%
Move to a more affordable city, metro area, or region 16%
Move into my parents’ home 14%
Move into my children’s (or other relative’s) home 8%
Rent out part of my home to vacationers/visitors 6%
Live in my car, office, or another place that’s not intended as housing 5%
Move into a non-relative’s home 4%
I would stay in my current home but stop paying the rent or mortgage 4%

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The Recession’s Lost Generation of Homeowners Isn’t Millennials – It’s the Middle-Aged

Though the published homeownership rate for young adults is still falling, true homeownership among young adults started rising in 2013. Adjusted for longer-term demographic shifts, young-adult homeownership is now at pre-bubble levels, but middle-aged homeownership is lagging.

The latest Census data shows homeownership is still falling for young adults, and the National Association of Realtors (NAR) reports that the share of first-time home-buyers is slipping. While the housing market is clearly improving, with four of the five key indicators of the housing recovery from our Housing Barometer at least halfway back to normal, it looks like the recovery is happening even without much improvement in first-time homeownership. Does that mean the housing recovery isn’t for real?

Not so fast. The official homeownership rate published by the Census gives a misleading picture of homeownership trends. In fact, homeownership among young adults is both on the rise and not too far off from where demographics say it should be. To see this, we did two things in this analysis: (1) account for changes in household formation to get a true measure of homeownership, and (2) adjust for longer-term demographic shifts to compare homeownership levels today with pre-bubble levels.

The answer: our “true” homeownership rate disagrees with the published homeownership rate, and shows that homeownership among young adults increased between 2012 and 2013 after hitting bottom in 2012. However, once we adjust for the huge demographic shifts among young adults – far fewer young adults are married or have kids than two or three decades ago – homeownership in 2013 was roughly at late-1990s levels. That means that the demographic shifts among young adults account for the entire decline in homeownership for 18-34 year-olds over the last twenty years. In other words, if the pre-bubble years of the late 1990s can be considered relatively normal, than today’s lower homeownership rate for young adults might be the new normal, thanks to demographic changes.

But that doesn’t mean all’s well. There may be longer-term damage to homeownership from the recession – but to the middle-aged, not millennials. Homeownership among 35-54 year-olds is lower today than before the housing bubble, even after accounting for demographic shifts. Here’s why.

Young Adult Homeownership Actually On the Rise
The published homeownership rate equals the share of households that own their home instead of rent. It does not, however, capture changes in whether people are dropping out of the housing market to live under someone else’s roof, like those millennials in their parents’ basement, who – in case you missed it – are for real. But if, say, people move out of their parents’ homes and into their own rental apartments, the published homeownership rate would still be falling even if the share of young adults who own remains the same.

Instead, we looked at the true homeownership rate, which equals the number of owner-occupied households divided by the number of all adults; in contrast, the published homeownership rate equals the number of owner-occupied households divided by the number of all households. Of course, the true homeownership rate is always going to be much lower – by half or more – than the published homeownership rate because there are roughly twice as many adults as there are households. The key point, though, is that the published and true homeownership rates can move in different directions if the number of adults per household is changing. That is, in fact, what happened during the recession and recovery (see note #1).

During the recession, as more young people moved in with their parents and fewer headed their own households, published homeownership rate fell from 44.1% in 2005 to 36.8% in 2012 – the 7-point decline was a 17% drop in homeownership. (What we’re calling “published” numbers actually differ slightly from the quarterly and annual homeownership estimates by age group published by the Census – see note #2.) However, the published rate understated the decline: the true homeownership rate for young adults fell from 17.2% in 2005 to 13.5% in 2012 – a drop of 22%.

Then, during the recovery, more young people started to form their own households, primarily as renters. The additional renters pushed the published homeownership rate for 18-34 year-olds down further in 2013 to its lowest level since our analysis begins in 1983:

PublishedHomeownership1834

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Basement-Dwelling Millennials Are For Real

Although a key Census survey counts students in dorms as living with parents, increased college enrollment and dormitory living do not account for the increase in millennials living under their parents’ roofs. Alternative analyses confirm that in the recession millennials have been much more likely to live with their parents than in the past.

The share of millennials – that is, 18-34 year-olds – living with their parents reached a many-decade high during the recession. Last week, an article suggested that these statistics are “criminally misleading” in overstating the increase in millennials actually living with parents because (1) they count dorm-dwelling college students as living with their parents and (2) college enrollment among young people has risen significantly.

Both these points are true: the Current Population Survey’s (CPS) Annual Social and Economic Supplement (ASEC) counts college students who are living in dorms as living with their parents, and college enrollment has indeed gone up. But it does not follow that basement-dwelling millennials are a myth. The ASEC and other Census data show that after adjusting for college enrollment and for dormitory living, millennials were more likely to live with parents in 2012 and 2013 than at any other time for which a consistent data series is available (1986 or 1990, depending on the data source).

Revisiting the ASEC Data
The ASEC counts college students who are living in dorms as living with their parents, so it’s impossible to separate out the dorm-dwellers who were reported as living with parents from college students actually living with their parents full-time. But the survey also reports whether 18-24 year-olds are enrolled in college (in survey years 1986 onward). As a first step, we can exclude all full-time college students from the analysis to make sure we’re not including any dorm-dwellers. Excluding full-time college students, the share of millennials living with parents is still far higher during the recession than at any other time since 1986.

Shareof1824LivingWithParents

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Baby-Boomer Downsizing? Perhaps Not So Fast

While the share of 50-to-69 years-olds living in multi-unit buildings rose slightly in 2012 and 2013, the long-term trend among older households shows downsizing getting rarer and happening later in life.

Throughout the recession and recovery, Millennials have hogged the attention: they suffered a particularly bad recession, which delayed their launch into the housing market, slowed overall household formation, and lowered first-time homeownership. But they’re hardly the only demographic that matters for housing. Baby Boomers will help determine the demand for different types of housing and the supply of homes for sale when – and if – they downsize.

This morning, Fannie Mae released a note on boomer downsizing, showing that the share of baby boomers in single-family detached homes has been roughly stable from 2006-2012 (rising slightly on a per-capita basis and falling slightly in the most recent years on a per-household basis). The big question is what happens longer term: are we about to hit a wave of baby boomers selling their single-family homes and moving into apartments and condos? It’s unlikely, for two reasons: baby boomers are still years away from the age of downsizing, and the long-term trend shows that older households today are less likely to downsize than older adults in the past.

Let’s start by looking at the age when older households move from single-family homes to multi-unit buildings. Based on the 2013 Current Population Survey’s Annual Social and Economic Supplement (CPS ASEC) – the most recent detailed demographic data available – baby boomers (born between 1946 and 1964, which means 50-68 years old in 2014) are less likely than almost any other age group to live in multi-unit buildings as opposed to single-family homes. The only age group less likely to live in multi-unit buildings is 70-74 year-olds, which is the age group that baby boomers will start to enter in the coming years.

HouseholdsLivingMultiUnitBuildings

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