per square mile), are high more because of land-use policies, such as urban-growth boundaries, than because they were built in the pedestrian or streetcar eras.
Single-family and multifamily: Stereotypically, single-family homes are owned by their occupants while multifamily housing is rented. This is one stereotype that is fairly valid. The 2000 census found that 87 percent of single-family detached homes, and more than 84 percent of all single-family homes, including row houses and mobile homes, were owner occupied. Meanwhile, 86 percent of multifamily homes, from duplexes on up, were rented.11 In 2000, 216 million Americans lived in some form of single-family housing, while 57 million lived in multifamily homes.
Single-family homes can be divided into single-family detached and single-family attached homes, the latter of which includes row houses. Nationally, the 2010 census found that more than 61 percent of housing is single-family detached; less than 6 percent is single-family attached; 26 percent is multifamily; and 7 percent is mobile home, boat, recreational vehicle, or van. Around 20 to 30 percent of the housing in the Baltimore, Philadelphia, and Washington, D.C., metropolitan areas is single-family attached, as is a little more than 10 percent of the housing in Miami, Minneapolis, San Jose, and Virginia Beach. Row houses and other attached housing make up less than 10 percent of homes in most other urban areas.12
In the early 2000s, many urban planners believed that American housing preferences were changing from single-family to multifamily homes. One planner predicted that the nation would have a huge glut of single-family homes by the year 2020 as empty nesters and young households without children would move to inner-city multifamily housing.13 Those predictions encouraged developers to build what turned out to be a glut of high-rise condominiums in many cities.14 Time will tell whether the demand for such housing will increase with the economic recovery.
Homeownership rates and prices: The Census Bureau first asked people whether they owned or rented their homes in 1890, and data became more detailed in each successive census. Beginning in 1960, the census asked for both home values and family incomes, so housing affordability—measured by dividing median home prices by median family incomes—can be gauged by state and urban area. The Federal Housing Finance Agency has published quarterly housing indexes by state and metropolitan area going back to 1975. These reports represent some of the most important data used in this book.
Money today and yesterday: A 1912 dollar is no more equal to a 2012 dollar than a British pound is to an American dollar. Although at any given time the factors for converting international currencies are relatively simple, there are many different ways of converting the value of dollars in one period to those of another. As appropriate, this book will rely on one or more of three standards: the consumer price index (CPI), a gross domestic product (GDP) index, and an unskilled wage index.
The CPI is based on changes in the cost of a number of goods and services, including food, housing, and transportation, regularly purchased by consumers. Of course, the food, housing, and transportation we enjoy today are very different from those of 100 or 150 years ago, and the index fails to account for such quality differences. It also fails to account for differences in personal incomes. Where the CPI focuses on consumer goods, the GDP index takes all goods and services into account, including those used by government and industry. The CPI is best when comparing costs to individuals and families; the GDP index is best when looking at government budgets over time.
To account for differences in housing costs and incomes, this book also uses an unskilled wage index. This index indicates how much work an unskilled worker would have to perform to buy equivalent goods at different points in time.15 It produces results that are quite different from the CPI or GDP. For example, a working-class home that might have cost $2,000 in 1890 is worth about $50,000 today using the CPI and $47,000 using the GDP index, but nearly $250,000 using the unskilled wage index, indicating that unskilled workers earned far less, relative to middle-class workers, in 1890 than they do today.
Widespread homeownership is a recent phenomenon in world history. Most people who have ever lived did not own the land they lived on. Just a few hundred years ago, only a tiny fraction of people—probably less than 1 percent—lived in homes that they owned. “Property systems open to all citizens are a relatively recent phenomenon—no more than 200 years old,” wrote economist Hernando de Soto in 2000.1
The Benefits of Homeownership
Advocates of policies aimed at boosting homeownership have long claimed that homeownership benefits not only the families of the homeowners but also society at large. Homeownership “makes for better children,” Herbert Hoover once told a convention of realtors.2 “When individuals and families own their home, they establish roots in their communities and have a greater stake in the growth, safety and development of their towns and cities,” said Elizabeth Dole.3
Many of these claims have been supported by researchers who have found many benefits of homeownership. In a 2003 lecture sponsored by Habitat for Humanity, Ohio State University economist Donald Haurin listed some of the documented private and social benefits of homeownership. The main private benefits include the following:
| 1. | Homeownership increases personal wealth, partly because it forces people to save money for a down payment and partly because the house itself appreciates in value.4 (However, as Chapter 11 will show, such appreciation is not guaranteed.) |
| 2. | Homeowners have an incentive to maintain their homes (to protect their investment) and thus “have better physical home environments than renters.” Moreover, neighborhoods with high rates of homeownership tend to have more stable property values because people maintain their homes and yards. |
| 3. | Owner-occupied homes are better for children, who do significantly better in school than children living in rental homes. The difference is greatest for children of low-income families and is negligible for wealthy families. |
| 4. | Personal self-esteem rises considerably when renters become homeowners, which is probably one reason why the children of homeowners do better in school. |
| 5. | Homeowners have a greater stake in the future of their community and so are more likely to get involved in community programs, public affairs, and politics. As another survey notes, this benefit has been confirmed by numerous studies.5 |
On the downside, Haurin notes that homeowners are less mobile than renters, making it more difficult for them to respond to changes in the employment market. However, as Chapter 14 will show, this lack of mobility is mainly a problem where government policies have made housing expensive. Unfortunately, the other downside is that one major effect of homeowners’ getting involved in politics is that they work to boost the values of their own homes—but by making housing expensive, they thereby reduce their own long-term mobility.
Other researchers have found that homeownership can provide families a safety net during bad economic times. Nations with high homeownership rates tend to have lower levels of social spending, apparently because the homes act as a form of social insurance and provide a nest egg for emergencies and peoples’ retirements.6
Naturally, some debate exists about whether homeownership truly does all these things. “There’s a pervasive problem in trying to sort out whether there is something intrinsic about homeownership that causes these externalities or whether the people that become homeowners are the kind of people that generate these externalities,” says Massachusetts Institute of Technology economist James Poterba.7 In other words, there may be a self-selection issue: people who are more likely to buy homes may also be more likely to save money, help their children do better in school, and get involved in the community. Haurin thinks his research on the effects of homeownership on children controlled for enough variables to