Real Estate and the Middle Class

Income inequality in this country is growing. Here are two ideas that could help this troubling trend.

May 13, 2015

As candidates from both parties jump into the 2016 presidential race, here's one point they would all do well to keep in mind: Economic inequality is growing, upward mobility is stalling, and the middle class is shrinking. These issues are of foremost concern to the United States and to real estate.

Over the past decade, renter households have grown by 8 million, while home owner households have fallen by 2 million. As a result, the country's home ownership rate has fallen to a 20-year low and now stands at 63.9 percent. 

With 20/20 hindsight vision, we can see some of the decline was inevitable because  of the loose mortgage standards that drove the home ownership rate to unsustainably high levels. Now, however, lending requirements have swung so far in the other direction. What's more, due to widespread housing shortages, home prices are rising too fast relative to the income of would-be buyers.

Given that home owner wealth is typically far greater than renter wealth, simple math will tell you that the rising ranks of renters and the shrinking ranks of home owners are a key indicator of the growing inequality across the country.  Here are two ideas that would mitigate these negative trends: 

  • Return to a happy medium for lending. Reduce government guarantee fees, lower FHA insurance premiums, and limit bank lawsuits.
  • Lessen onerous new financial regulations on small banks. Community banks are the most important source of financing for small builders, historically the biggest producers of single-family homes in the United States. Since these banks do not cause systemic risks to the economy, let them make loans without having to follow the costly and burdensome regulations that were imposed after the downturn. More supply from small builders will relieve inventory shortages and tame home price growth.

These policy changes will give more people a chance to build wealth through home ownership. More home building and more home sales accelerate job creation and wage growth. The country's gross domestic product could rise to 3 percent or better, compared to the 2.2 percent average annual growth we’ve seen since the recession. Candidates: Let the debates over boosting prosperity begin.


Lawrence Yun
Chief Economist and Senior Vice President of Research at the National Association of REALTORS®

Yun oversees and is responsible for a wide range of research activity for the association including NAR’s Existing Home Sales statistics, Affordability Index, and Home Buyers and Sellers Profile Report. He regularly provides commentary on real estate market trends for its 1.3 million REALTOR® members.

Dr. Yun creates NAR’s forecasts and participates in many economic forecasting panels, among them the Blue Chip Council and the Wall Street Journal Forecasting Survey. He also participates in the Industrial Economists Discussion Group at the Joint Center for Housing Studies of Harvard University. He appears regularly on financial news outlets, is a frequent speaker at real estate conferences throughout the United States, and has testified before Congress. Dr. Yun has appeared as a guest on CSPAN’s Washington Journal and is a regular guest columnist on the Forbes website and The Hill, an “inside the beltway” publication on public affairs.

Dr. Yun received his undergraduate degree from Purdue University and earned his Ph.D. from the University of Maryland at College Park.