Misleading Comparisons of Homeownership Rates when the Variable Effect of Household Formation Is Ignored: Explaining Rising Homeownership and the Homeownership Gap between Blacks and Asians in the US

Abstract

Despite ominous signs of housing market stress in the US, the homeownership rate reached an all-time high in 2006. The conventional definition of homeownership, which is based on the share of households and ignores the effects of variable household formation, confounds the measurement of ‘success’ in achieving homeownership. It is found that, from 1990 to 2006, declining household formation led to an elevated homeownership rate in the US and that this effect varies substantially between racial/ethnic groups. Asians, who achieve high homeownership rates, have the lowest propensity to form independent households, in sharp contrast to African Americans. Asians do not have better access per capita to owner-occupied housing than do Blacks. The conventional measure of homeownership is an incomplete measure of homeownership opportunity because it fails to account for variable household formation. The changing population mix in the US includes groups with different propensities for household formation, thus confusing future assessments of homeownership and the housing market.