Home ownership rates are falling in many parts of the world. Here we compare recent trends in the UK (where the owner-occupier rate has dropped from 71% to 68%) with developments in the US and Spain.
To put our story in some context, it is worth recalling that in much of the industrial world, a combination of ageing baby boomers, increases in educational attainment, and the growth in income all served to increase home ownership from the 1980s onwards. In addition the promotion of this type of tenure has been a key plank of housing policy in a large number of countries in recent years. Indeed, government policy in the 1980s of selling council houses to tenants kick-started the rise in homeownership in the UK.
This has manifested itself both directly through subsidies as well as by government agencies. Home ownership has been seen to bring a number of benefits (i) accumulation of wealth as home ownership is often regarded as a long-term investment (ii) the dwelling itself ownership dwellings are typically larger and of higher quality (Atterhog, 2005) and (iii) the non-tangible benefits many of which constitute positive externalities for society and local community.
Notwithstanding this, home ownership rates vary considerably across countries because of economic and cultural factors. Spain for example,
currently has a home ownership rate of 82%, the UK 68% and the US 67%.
All three countries saw home ownership rates rise dramatically and peak during the first half of the last decade rather than later, as one might have been expected, at the onset of the credit crunch.
In the UK, after hitting its peak in 2003 (71%), owner occupier rate has fallen 3 percentage points to currently stand at 68%. Spain has seen the largest drop in home ownership, with the current rate 10 percentage points below the peak of 92% achieved in 2002. Surprisingly, the decline in the US home ownership has been fairly modest, falling 2 percentage points from its peak of 69% in 2004.
Significantly the rise in home ownership rates in all three countries was also accompanied by rising home prices. New home prices in the US increased at their quickest pace in the same year that the home ownership rate hit a high watermark, in 2004. Meanwhile in the UK and Spain the picture was not too dissimilar.
The decline in home ownership rate from the earlier part of the decade was in part due to stretched affordability. Conventional measures of value relating house prices to income and rent moved significantly higher increasing the attraction of alternative forms of tenure, mostly private lettings.
This was in due course compounded by a dramatic tightening in credit conditions and a rise in unemployment as the recession set in. In the
fallout from the downturn in real estate, US house prices are still 29% below their pre-crisis peak (CaseShiller 20-city index), while in Spain they remain 13% (Ministry of Housing index) below their high. In the UK prices are 9% down on their peak according to the Land Registry. Despite the drop in prices, our judgement is that the combination of tight lending constraints, which look set to persist, and a generally uncertain economic environment points to a further shift in tenure over the next few years, with owner occupier rates continuing to edge lower at the expense of private lettings. Aspiring to own a home is still the dream for the majority of people, but in the current conditions of high house prices and little mortgage finance available, owning a home seems like quite a distant goal for many.