A new brief just released by the Penn Institute for Urban Research finds that due to current borrowing constraints, many households are renting out of financial necessity rather than by choice. Further, the report finds that these constraints are underlying declining home ownership rates and instability in the housing market.
“The cause of the homeownership declines matters as much as the fact that they are occurring,” according to the report’s authors. “If financial constraints are yielding the homeownership decline, then many people are unable to access the benefits of homeownership despite their potential preferences to own.”
The authors write that in the years since the housing crisis, major banks have imposed stringent mortgage requirements, making it harder for many people to access lending. They find that actual lending access has declined relative to historic standards despite the fact that mortgage-lending rates are at all-time lows and affordability, using traditional measures, is seemingly high.
The authors cite their newly published work that shows the impact of post-crisis borrowing constraints on current homeownership rates. They also review a large body of research that demonstrates the important role of lending constraints on changes in homeownership outcomes over time. And they analyze the results of their recently published research that tests the impact of these changes on today’s homeownership outcomes.
During the years 2009 to 2014, 5.2 million more mortgage loans would have been made if credit standards were at levels similar to those in 2001 (before the credit boom). The authors quantify how much of the decline in homeownership directly relates to this tightening of credit standards. They find that the homeownership rate from 2010 to 2013 is predicted to be 2.3 percentage points lower today than if the constraints were set at the 2001 level.
Because the demographic groups most subject to borrowing constraints are increasing as a share of the population, Wachter and Acolin find that if lending conditions persist, their impact on the homeownership rate will likely increase over time. Plus, in the longer run, additional economic factors may push homeownership rates lower.
In particular, revitalizing cities and population gains in high-priced and high job-growth cities are increasing housing prices in those areas. By considering scenarios that include the possible combined effects of financial constraints, rising housing costs and demographic shifts, the authors show potential future declines in aggregate homeownership rates.