How Much Does Declining Household Formation Contribute to Rising Homeownership?

Zhou Yu, University of Southern California

The 1990s saw widespread increases in homeownership rates, suggesting that a larger share of households own their homes. However, the increases may in part be due to renters dropping out of the housing market. This paper investigates the extent to which the homeownership increases in the top 100 U.S. metropolitan areas is the result of the decline in household formation and the displacement of would-be renters from the housing market. We expect to find: The effect of declining household formation on homeownership attainment is most evident among adults under age 35, adults of lower educational attainment or income level, minorities, and recent immigrants. While large differences exist across metropolitan areas, the impacts are most evident in metropolitan areas that received a large number of in-migrants, and where housing construction lagged behind employment growth. The drop in household formation is reflective of both affordability problems and voluntary changes in household structure.