Housing Vacancy Survey Report Q2 2019

Housing Tenure Trends Report Q2 2019

By Rachel Drew

Introduction

The U.S. homeownership rate continued to show signs of weakness in Q2 2019, falling by 0.1 percentage points on a seasonally-adjusted basis to 64.2 percent, according to data from the Census Bureau’s Housing Vacancy Survey (HVS). While not a statistically significant change relative to rates from one quarter or one year ago, this shift represents the second straight reported decline in this share. The percentage of households renting their primary residence, meanwhile, increased slightly to 35.8 percent. 

The graphics below display these updated statistics in the context of long-run trends in shares of owning and renting households. They also disaggregate tenure rates for subsets of the population by age, race, and income, to demonstrate how various groups experience changes in homeownership and rentership differently.

In addition, the last section of the report takes a deeper dive into one of the more dramatic trends covered by this data. For this quarter, it looks at the growing gap in tenure rates between non-Hispanic White and Black households, which has important implications for housing affordability, wealth inequality, and access to opportunity. 

Finally, these data remind us that despite high rates of homeownership across the country, millions of American households still rely on rental units provided by private landlords to meet their shelter needs. It is crucial that communities around the country allow for housing of all types and tenures to be built, so that all households can have access to suitable and affordable living quarters.

National Tenure Trends

The two-quarter decrease in the national homeownership rate breaks the upward trend that started in 2016. Despite this recent shift, the share of households that own their homes is still more than a percentage point above its record low point of 63.0 percent, experienced at the end of a 12-year period of declines. Uptick in the rentership rate likewise stems the 10-quarter downward trend that followed the record-high 37 percent of household renting three years ago.

While still too small and recent to raise serious concerns about the long-term direction in tenure trends, the current shift in tenure rates does suggest some softening in the market for homebuying. Demand for renting, meanwhile, remains well above long-term trends and will continue to place pressure on the need for affordable rental options across the country.

 

Quarterly Tenure and Housing Cost Indices

To better assess trends in tenure rates, it is useful to view them as indexes relative to their 1980 levels, as shown below. Rentership rates, which start from a lower base level than homeownership rates, appear as larger relative changes over time, even though the change in the absolute value is the same for both series.

Comparing these indexed values to similar data on the inflation-adjusted costs of buying and renting adds another dimension to this analysis. Specifically, it reveals a disconnect between the demand for owning and renting housing and the costs to procure it. Both home buying and renting expenses have increased steadily over the last seven years, even as shares of owning and renting households have fluctuated. Indeed, relative to the past forty years, real rental costs are now higher than they have ever been, and the price of owned homes is rapidly approaching its former peak.

 

Tenure Trends by Age

When disaggregated by age, the data show that all subsets of households have seen slight decreases in their homeownership rate so far in 2019. The youngest groups saw the largest declines, with smaller shifts found among middle-aged and senior households. Relative to young households’ already lower homeownership share, this shift represents a dramatic turnaround in what had been a notable fall in rentership rates 2016-2018, as more Millennial households began purchasing homes.

The more volatile rates for younger households are also highly correlated with changes in the national rate, as older tenure patterns tend to stay relatively stable. Said another way, households’ tendencies to own or rent are generally established by the time they reach mid-age, with only smaller shifts reflecting broader economic or demographic changes. Younger households, meanwhile, are still establishing their households and making the decision to own – or not – at different ages based on their family, career, and financial conditions. Going forward, their behavior in the housing market will likely continue to drive overall trends.

Note that these groups are based on the ages of households at the time of observation and does not follow generational cohorts as they mature. Thus, while current tenure rates of under-35-year-old householders generally reflect conditions among Millennials, the same data in the late 1990s and early 2000s represents trends among Gen-Xers at that age.

 

Tenure Trends by Race/Ethnicity

The dominant trend in tenure rates by race and ethnicity continues to be rising rentership among Black households, who are the only racial/ethnic subgroup to experience a net decrease in homeownership rates since 2016. Hispanic, Asian, and non-Hispanic White households, meanwhile, have all seen a relative increase in homeownership over this period, even as rentership rates for all groups except Whites rose in the first half of 2019.

As minorities continues to account for larger shares of households overall, their tenure trends will increasingly determine national tenure conditions. Assuming Hispanic and Asian homeownership rates resume their recent increases, the more variable rates of Black households will play a dominant role in the direction of homeowner and rentership shares in the near term – another reason to give more attention to the growing racial gap in homeownership.

 

Tenure Trends by Income

Growth in low-income homeownership continues to buck the national trend, holding steady in the first half of 2019 at 50.3 percent. Still, nearly half of all households with earnings below the median family income rent their homes, with many struggling to find affordable units in their communities. Higher income households, meanwhile, saw their tenure rates decline slightly, reducing their tenure gap with lower-income households.

Note that these trends do not necessarily herald a shift in homebuying behavior among high- and low-income households, as shifting demographics are likely a key factor in these patterns. Specifically, retiring homeowning Baby Boomers are making up ever larger proportions of below-median income households, which elevates this group’s homeownership shares without needing any increase in home purchases. At the same time more young households that rent are earning above the median, which skews high-income rentership rates upward.

 

A Deeper Dive: The Black-White Tenure Gap

Of the many long-term trends in tenure rates described in this report, perhaps the most striking one is the divergence in owner and rentership rates between non-Hispanic White and Black households. As noted, the gap between these groups has grown from a low of 26.5 percentage points in 2001 to 32.3 percentage points as of the first half of 2019, with falling homeownership among Black households (rather than rising rates for White households) primarily to blame.

Other studies have also noted this trend, and further disaggregated its sources and effects. One recent analysis found declines in Black homeownership rates from 2001-2016 were greater for younger and middle-aged households (vs. seniors), and for married (vs. single) households. Given that homeownership is directly linked to higher rates of wealth accumulation, access to better quality and lower poverty neighborhoods, and lower housing cost burdens (even after adjusting for income), these declines have the potential to substantially impact economic opportunity for Black households over all.

Such declines are not only notable for their impacts on current households, but also on the homeownership prospects for the next generation, as subsequent research identified parental wealth and tenure status as contributing to one-eighth of the gap between Black and White young adult homeownership rates. As the homeownership gap increases, therefore, the racial gap in wealth and opportunity is likely to also widen.

One aspect of homeownership that does not differ between Black and White households is the desire to own. Research on tenure preferences immediately after the late-2000s housing market collapse show high intentions to own among renters of all races and ethnicities, even after accounting for differences in age, income, and wealth. The demand is there, but not the supply of affordable homes and home financing options accessible to Black households. Until this mismatch in the housing market is addressed, the issue of racial tenure, wealth, and opportunity gaps will remain prescient.

Housing Vacancy Survey Report Q1 2019

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