As Home Ownership Drops, Inequality Rises
May 8, 2015
Climbing home prices are helping home owners accumulate wealth, but with recent declines in the home ownership rate it means the gains are going to fewer people and contributing to a worsening inequality in the U.S., new research from the National Association of REALTORS® shows.
Indeed, wealth distribution is most unequally distributed in metro areas with the lowest home ownership rates, like high-cost areas in Los Angeles, New York, and San Diego. For their analysis, NAR reviewed data like home ownership rates, fluctuations in single-family median home prices, and measures of inequality between 2010 and 2013 in order to estimate the wealth and income inequality in 100 of the largest metro areas.
"Home ownership plays a pivotal role in the U.S. economy and has historically been one of the primary sources of wealth accumulation for middle class families," says Lawrence Yun, NAR’s chief economist. "Unfortunately, due to an underperforming labor market, insufficient housing supply, and overly stringent underwriting standards since the recession, home ownership has plunged to a rate not seen in over two decades. As a result, the country has become more unequal as the number of home owners has fallen while the number of renters has significantly risen."
A metro area's low home ownership rate was found to be highly linked to greater wealth inequality, NAR found. Home owners net worth often climbs due to increases in home values and declining mortgage balances while renters net worth doesn’t budge due to rising housing costs. As such, the inability for renter households to become home owners is leaving them financially behind, Yun says.
Read more: Why Renters May Be in Trouble
"Changes in wealth during this period [2010-2013] are especially profound in high cost metro areas that have seen robust price growth," says Yun. "For instance, a typical home owner in San Jose, Calif., enjoyed an increase of $210,671 in housing wealth while renters were left behind and likely exposed to annual rent increases.”"
The areas that have the most unequal wealth distribution are Los Angeles; New York; Las Vegas; Fresno, Calif.; and San Diego, NAR's study shows.
"The decline in home ownership has serious implications for our economy and is currently leading to a more unequal America," says Yun.
Updated: February 14, 2020