CityMetric is based in London. CityMetric often runs angry commentary about house prices. These two facts may be connected.
So it’s good, for a certain value of good, to be reminded that ludicrously over-priced housing is not a problem specific to the British capital. It’s not even a problem specific to Britain.
This morning the US Census Bureau published its quarterly statistical bulletin on the US housing market. Figure 4 caught our eye, because it looks like this:
Home ownership rates are at their lowest in 20 years. They were falling before the recession. And they’re still falling now.
So, what’s going on? Here’s Bloomberg News, reporting on last quarter’s version of the same release:
Housing has become less affordable and more difficult to finance for entry-level buyers, even as mortgage rates have held close to record lows. First-time purchasers accounted for 28 percent of all sales of previously owned homes in June, compared with about 40 percent historically, according to the National Association of Realtors.
“The first-time buyers are the ones who would be the net addition to home ownership,” Millan Mulraine, deputy head of U.S. research and strategy at TD Securities USA LLC in New York, said in an interview. “Those people… are not owning homes like they used to. Credit is tighter, they’re laden with student loans and their incomes are lower than they used to be.”
In other words, during the boom, prices got too high for first-time-buyers to break into the market. During the bust, lending got too tight for them to break in. And before the banks loosened up once again, prices had already started rising.
This is very, very similar to the pattern in the UK, where ownership rates dropped from 71 per cent in 2003 to 65 per cent a decade later, their lowest level in a quarter of a century.
But there is one crucial difference: in the US, land is at much less of a premium, and it is much, much easier to build houses. The obvious conclusion is that a shortage of supply isn’t the only thing making housing less affordable and keeping would-be-buyers out of the market.
All this, depressingly, suggests that – even if we could make it happen – planning reform might not be enough to get home ownership rates climbing once again. Something else is going on here.