Description
The American Dream and homeownership are sometimes thought of as one and the same.
Abelief that homeownership is vital to the fabric of a vibrant society has led to government policies that
encourage homeownership. This suggests that homeownership and societal well-being are positively
related. However, empirical analysis does not support this positive relationship either within the USA or
across countries. This has important policy implications given the research in this special issue that
discusses the macro and micro economic consequences of government programs that promote
homeownership. Moving forward, we must consider both the private and public benefits of
homeownership and also realize that the very concept of what a house is will likely change. This paper
aims to discuss these issues.
Journal of Financial Economic Policy
Homeownership: yesterday, today and tomorrow
Steve Swidler
Article information:
To cite this document:
Steve Swidler, (2011),"Homeownership: yesterday, today and tomorrow", J ournal of Financial Economic
Policy, Vol. 3 Iss 1 pp. 5 - 11
Permanent link to this document:
http://dx.doi.org/10.1108/17576381111116786
Downloaded on: 24 January 2016, At: 21:40 (PT)
References: this document contains references to 9 other documents.
To copy this document: [email protected]
The fulltext of this document has been downloaded 397 times since 2011*
Users who downloaded this article also downloaded:
Beverley Searle, (2011),"Recession and housing wealth", J ournal of Financial Economic Policy, Vol. 3 Iss 1
pp. 33-48 http://dx.doi.org/10.1108/17576381111116867
Marco Salvi, J uerg Syz, (2011),"What drives “green housing” construction? Evidence from Switzerland",
J ournal of Financial Economic Policy, Vol. 3 Iss 1 pp. 86-102 http://dx.doi.org/10.1108/17576381111116777
Craig A. Depken, Harris Hollans, Steve Swidler, (2011),"Flips, flops and foreclosures: anatomy
of a real estate bubble", J ournal of Financial Economic Policy, Vol. 3 Iss 1 pp. 49-65 http://
dx.doi.org/10.1108/17576381111116759
Access to this document was granted through an Emerald subscription provided by emerald-srm:115632 []
For Authors
If you would like to write for this, or any other Emerald publication, then please use our Emerald for
Authors service information about how to choose which publication to write for and submission guidelines
are available for all. Please visit www.emeraldinsight.com/authors for more information.
About Emerald www.emeraldinsight.com
Emerald is a global publisher linking research and practice to the benefit of society. The company
manages a portfolio of more than 290 journals and over 2,350 books and book series volumes, as well as
providing an extensive range of online products and additional customer resources and services.
Emerald is both COUNTER 4 and TRANSFER compliant. The organization is a partner of the Committee
on Publication Ethics (COPE) and also works with Portico and the LOCKSS initiative for digital archive
preservation.
*Related content and download information correct at time of download.
D
o
w
n
l
o
a
d
e
d
b
y
P
O
N
D
I
C
H
E
R
R
Y
U
N
I
V
E
R
S
I
T
Y
A
t
2
1
:
4
0
2
4
J
a
n
u
a
r
y
2
0
1
6
(
P
T
)
EDITORIAL
Homeownership: yesterday,
today and tomorrow
Steve Swidler
Department of Finance, Auburn University, Auburn, Alabama, USA
Abstract
Purpose – The American Dream and homeownership are sometimes thought of as one and the same.
Abelief that homeownership is vital to the fabric of a vibrant society has led to government policies that
encourage homeownership. This suggests that homeownership and societal well-being are positively
related. However, empirical analysis does not support this positive relationship either within the USAor
across countries. This has important policy implications given the research in this special issue that
discusses the macro and micro economic consequences of government programs that promote
homeownership. Moving forward, we must consider both the private and public bene?ts of
homeownership and also realize that the very concept of what a house is will likely change. This paper
aims to discuss these issues.
Design/methodology/approach – The analysis examines the relation between the incidence of
homeownership and the well-being (happiness) of a community. The analysis is ?rst performed across
the 50 states and then is done on a cross-section of 26 countries.
Findings – The correlation coef?cient between home ownership rates and well-being are negative for
both the US and international data. The evidence does not support the belief that homeownership is
either necessary or suf?cient for societal well-being.
Originality/value – The paper presents some of the ?rst empirical analysis to examine the
relationship between homeownership and societal well-being. Other studies in this special issue
document both public and price costs to owning a home. Taken together, the special issue has important
implications for government policies that encourage homeownership.
Keywords Residential homes, United States of America, Societal organization, Private ownership
Paper type Research paper
Homeownership: yesterday, today and tomorrow
For many, the American Dream and the dream of owning one’s home are sometimes
thought of as one and the same (Barreto et al., 2007; Berson and Neely, 1997). Encouraged
by government policy, Americans have long aspired to home ownership. As a result,
many individuals own one or more homes making real estate a signi?cant holding in
their portfolio. In 2007, real estate represented 32.9 percent of all household assets in the
USA, and after subtracting outstanding mortgages, contributed $12.8 trillion to
household net worth (Flow of Funds Accounts of the United States).
While some point to the Homestead Act signed by Abraham Lincoln in 1862 as
the ?rst major push by the federal government to promote homeownership, others
refer to Herbert Hoover’s “Own Your Own Home” campaign as the start of federal
involvement (Hutchison, 1997). First as Secretary of Commerce and later as President of
the USA, Hoover helped forge a partnership between the federal government and the
construction industry, and he also championed new long-term mortgages offered by
banks and savings and loans. In a pamphlet published by the government
(US Department of Commerce, 1923), Hoover reasoned that:
The current issue and full text archive of this journal is available at
www.emeraldinsight.com/1757-6385.htm
Homeownership
5
Journal of Financial Economic Policy
Vol. 3 No. 1, 2011
pp. 5-11
qEmerald Group Publishing Limited
1757-6385
DOI 10.1108/17576381111116786
D
o
w
n
l
o
a
d
e
d
b
y
P
O
N
D
I
C
H
E
R
R
Y
U
N
I
V
E
R
S
I
T
Y
A
t
2
1
:
4
0
2
4
J
a
n
u
a
r
y
2
0
1
6
(
P
T
)
[T]he present large proportion of families that own their own homes is both the foundation of a
sound economic and social system and a guarantee that our society will continue to develop
rationally as changing conditions demand.
Despite Hoover’s policies, the percentage of householders who owned their homes in
1930 was 47.8 percent, little more than the 45.6 percent rate in 1920. In fact, the
percentage in 1930 was identical to the homeownership rate 40 years earlier. It was not
until the end of Second World War that homeownership rates rapidly increased. Spurred
by the creation of the Federal National Mortgage Association (Fannie Mae) and a
secondary market for mortgages along with bene?ts stemming from the G.I. Bill,
homeownership jumped to 55 percent in 1950 and 61.9 percent in 1960. After climbing to
64.4 percent in 1980, housing rates did not appreciably rise until the mid-1990s, peaking
at 69.2 percent in the last quarter of 2004.
What started with Hoover’s belief that homeownership is the cornerstone of a vibrant
society was echoed more recently by George Bush:
[. . .] if you own something, you have a vital stake in the future of our country. The more
ownership there is in America, the more vitality there is in America, and the more people have a
vital stake in the future of this country ( June 17, 2004).
In promoting an “Ownership Society,” Bush initiated policies intended to increase
homeownership of minorities and lower income individuals.
Given the recent crisis in housing, the natural question to ask is should everyone
own a home? One way to begin answering this question is to examine the relationship
between homeownership and some measure of happiness or well-being.
If homeownership is vital to the fabric of our society, it should result in a more
content and happy population.
To see if happiness is positively correlated with homeownership, Table I lists two
wellness measures (source: Gallup-Healthways) and homeownership for each of the
50 states (US Census Bureau, 2010, quarter 3). The Well Being index is a composite
measure based on 40 survey questions covering such things as access to life necessities,
workplace environment, healthy behavior and physical and emotional health. Life
Evaluation, included in the Well Being index but broken out here as an alternative
wellness measure, seeks to evaluate an individual’s present life with their anticipated
life ?ve years from now.
Comparing the two wellness measures to state homeownership rates reveals that
both are negatively, not positively, related to homeownership. While correlation does not
imply causation, there is little support for the notion that home ownership in the USA
contributes to happiness. Table I further reveals that states with the lowest
homeownership include some of the highest price states (California, Hawaii and
New York), while high homeownership is found in states with some of the lowest prices
(Mississippi, South Carolina and West Virginia). As it turns out, well-being measures are
positively associated with household income (Rampell, 2009), so that if home prices and
income are also positively related, the result that homeownership rates are inversely
related to happiness is not surprising.
If homeownership does not contribute to happiness in the USA, is the same true
around the world? Similar to circumstances in the USA, Fisher and Jaffee (2003) examine
international data and ?nd a negative correlation between income (GDP per capita) and
homeownership rates. However, they ?nd it dif?cult to model homeownership rates
JFEP
3,1
6
D
o
w
n
l
o
a
d
e
d
b
y
P
O
N
D
I
C
H
E
R
R
Y
U
N
I
V
E
R
S
I
T
Y
A
t
2
1
:
4
0
2
4
J
a
n
u
a
r
y
2
0
1
6
(
P
T
)
State Well-being Life eval. Home own (%)
Alabama 64.9 42.4 74.9
Alaska 66.2 43.9 64.9
Arizona 66.8 44.3 65.4
Arkansas 62.9 33.9 66.1
California
a
67 43.2 56.2
Colorado 67.3 44.9 69.1
Connecticut 66.3 39.6 69.4
Delaware
b
64.7 39.5 75.8
Florida 65.3 39.7 68.3
Georgia 66 44.5 67.6
Hawaii
a
68.2 48.6 54.7
Idaho 66.8 41.2 72.3
Illinois 65.2 40.4 68.7
Indiana 63.3 35.9 70.1
Iowa 65.6 36.9 70.4
Kansas 66.1 39.8 67.7
Kentucky 61.4 30.9 70.0
Louisiana 64.2 42.3 71.1
Maine 65.5 33.2 74.3
Maryland 67.1 46.8 68.8
Massachusetts 67 42.3 67.1
Michigan
b
64 36.7 75.4
Minnesota 67.3 40 74.3
Mississippi
b
61.9 38.8 77.5
Missouri 63.8 35 71.9
Montana 66.7 39.8 67.0
Nebraska 66.4 40.7 70.5
Nevada
a
64.5 39.8 59.7
New Hampshire 66.7 39.3 74.9
New Jersey 65.8 40.1 64.0
New Mexico 66.3 41.4 67.5
New York
a
64.7 38.3 54.6
North Carolina 64.8 40 70.7
North Dakota 65.5 34.9 65.5
Ohio 62.8 34.1 70.1
Oklahoma 64 36.9 69.7
Oregon 66.3 39.7 66.7
Pennsylvania 64.9 36.2 71.8
Rhode Island
a
64.6 36.7 62.9
South Carolina
b
65.7 42.3 76.4
South Dakota 64.3 35 70.8
Tennessee 64 37 71.7
Texas 66.1 44.6 64.7
Utah 69.2 48.3 72.9
Vermont 66.6 40.3 73.2
Virginia 66.5 43.4 69.1
Washington 67.1 42.9 63.9
West Virginia
b
61.2 29.5 78.2
Wisconsin 65.9 37.8 71.7
Wyoming 68 45 74.2
Notes: Correlation coef?cient between well-being and home ownership ¼ 20.2537; correlation coef?cient
between life evaluation and home ownership ¼ 20.2821;
a
states with the lowest homeownership rates;
b
states
with the highest homeownership rates
Sources: Well Being and Life Evaluation Index Values: Gallup-Healthways Index (www.ahiphiwire.org/
WellBeing/Tools/Table.aspx); State Homeownership Rates: US Census Bureau (www.census.gov/hhes/www/
housing/hvs/rates/index.html)
Table I.
Well-being and
homeownership – USA
Homeownership
7
D
o
w
n
l
o
a
d
e
d
b
y
P
O
N
D
I
C
H
E
R
R
Y
U
N
I
V
E
R
S
I
T
Y
A
t
2
1
:
4
0
2
4
J
a
n
u
a
r
y
2
0
1
6
(
P
T
)
across countries and argue that “one cannot understand a homeowner’s behavior
without evaluating the range of institutions affecting housing markets and consumer
choices.” Presumably, these institutions include government policies that often
encourage homeownership (Atterho¨g, 2005). While not directly addressing the issue of
happiness, Fisher and Jaffees’ work suggests that any link between measures of
well-being and homeownership may be dif?cult to explain cross culturally.
To see if happiness and homeownership are related in an international setting,
Table II considers the homeownership rate of 26 countries (source: Pollack, 2010).
Homeownership is againcomparedto two measures of happiness. The ?rst is the Human
Development Index (HDI) published by the United Nations Development Programme
and the second is a happiness index based on a Gallup survey showing the percentage of
the population that is “thriving” Once again, both measures of well-being are inversely
related to homeownership rates. Remarkably, Singapore with the lowest percentage of
thriving citizens has the highest homeownership rate, while a very “happy” Denmark
has one of the lowest homeownership rates. Thus, even the international evidence does
Country HDI Happy thrive (%) Home own (%)
Singapore 0.846 19 89
Spain 0.863 36 85
Iceland 0.869 47 83
Belgium 0.867 56 78
Norway 0.938 69 77
Portugal 0.795 22 76
Luxembourg 0.852 45 75
Ireland
a
0.895 54 75
Chile 0.783 41 73
Italy 0.854 39 72
Israel 0.872 62 71
Australia 0.937 62 70
England
b
0.849 54 68
Canada 0.888 62 68
Sweden 0.885 68 68
New Zealand 0.907 63 68
USA 0.902 57 67
Japan 0.884 19 61
Finland 0.871 75 59
Czech Republic 0.841 39 59
France 0.872 35 57
The Netherlands 0.890 68 57
Austria 0.851 57 56
Denmark 0.866 82 54
Germany 0.885 43 46
Switzerland 0.874 62 35
Notes: Correlation coef?cient between HDI and home ownership ¼ 20.1218; correlation coef?cient
between happy/thrive and home ownership ¼ 20.3243;
a
happy value is for the UK;
b
HDI and happy
values are for the UK
Sources: HDI: United Nations Development Programme (http://hdr.undp.org/en/statistics/data/);
Country Happy-thrive Rates: Gallup World Poll (www.gallup.com/poll/126977/global-wellbeing-
surveys-?nd-nations-worlds-apart.aspx); AEI (2010)
Table II.
Well-being and
homeownership –
international
JFEP
3,1
8
D
o
w
n
l
o
a
d
e
d
b
y
P
O
N
D
I
C
H
E
R
R
Y
U
N
I
V
E
R
S
I
T
Y
A
t
2
1
:
4
0
2
4
J
a
n
u
a
r
y
2
0
1
6
(
P
T
)
not appear to support the notion that homeownership directly contributes to a society’s
well-being.
Of course, one reason why the link between homeownership and well-being may be
weak is that ownership rates do not capture either the size or quality of housing. It is
doubtful, for example, that the typical home in Singapore is similar to those in Denmark.
Thus, doing a simple cross-sectional analysis of country homeownership is like
comparing apples to oranges. Even in a time series study, it is dif?cult to capture
differences in housing attributes. Consider indoor plumbing in the USA. In 1860,
1 percent of households had inside ?ush toilets. This increased to 20 percent in 1920,
60 percent in 1940 and over 99 percent today (Source: Learning Seed, 2003).
Despite there being little empirical support for the belief that homeownership is vital
to the fabric of society and leads to societal well-being, government policies in many
nations continue to encourage homeownership. These policies contributed to the recent
housing crisis, causing a signi?cant decline in household wealth and ultimately a
world-wide recession. As we move forward, this latest experience is sure to affect how
we think about housing as both an investment and consumption good.
The articles in this special issue on housing touch on the many themes of
homeownership. In, “The ?nancial crisis: imperfect markets and imperfect regulation,”
Richard J. Buttimer Jr documents the evolution of the US housing ?nance market and
discusses the role that the Federal National Mortgage Association (Fannie Mae) and
Federal Home Mortgage Corporation (Freddie Mac) played in the recent crisis. With the
development of the secondary mortgage market, housing became more affordable to a
greater number of Americans. Oversight of the two government-sponsored entities
(GSE) passed from one federal authority to the next, but always the message was to
increase homeownership. While this led to an expansion of subprime lending, Buttimer
argues that regulators did not, and perhaps could not, anticipate that the collapse of the
subprime market would eventually cause a meltdown of the entire ?nancial system.
The capital reserves of ?nancial institutions were not suf?cient to ride out the crisis and
the seizing of credit markets paved the way for a world-wide recession.
While the ?rst paper touches upon the macro-economic implications of the housing
market collapse, Beverley Searle considers the effect of falling home values on household
welfare. In, “Recession and housing wealth,” she uses a unique set of data drawn from
the British Household Panel Survey to examine household behavior in a time of
diminished housing wealth. Searle documents the changing role of housing wealth from
an investment vehicle to a ?nancial safety net and shows that housing tends to be used
only after other lines of credit are exhausted.
The risks associated with housing wealth are also the focal point of the next two
articles. In, “Flips, ?ops and foreclosures: anatomy of a real estate bubble,”
Craig A. Depken II, Harris Hollans and Steve Swidler, use property tax records to
trace the housing boomand bust in the Las Vegas metropolitan area. At the height of the
bubble, a signi?cant percentage of home sales involved ?ipping activity, the buying and
quick reselling of property in anticipation of pro?ts. Speculation caused prices to rise
dramatically, resulting in an overbuilt market and ultimately a record number of
foreclosures. This recent episode represents one of the darkest sides to government
policies that encourage homeownership.
To what extent house price risk can be managed is the subject of, “home equity
insurance.” Dag Einar Sommervoll and Gavin Wood use housing market transactions
Homeownership
9
D
o
w
n
l
o
a
d
e
d
b
y
P
O
N
D
I
C
H
E
R
R
Y
U
N
I
V
E
R
S
I
T
Y
A
t
2
1
:
4
0
2
4
J
a
n
u
a
r
y
2
0
1
6
(
P
T
)
in the Melbourne metropolitan area to derive a repeat sales index. They then compare
experiential returns from owning a home to the contemporaneous return of the index.
Given a minimum time of ownership, Sommervoll and Wood ?nd that no more than
50 percent of owners that lose money on their homes are likely to receive an insurance
payout. While target ef?ciency (the probability of payout given a loss) increases if the
payout is a function of a neighborhood index, the idiosyncratic component of housing
returns remains high and suggests that house price insurance will likely be unattractive
for many homeowners.
As individuals begin to change their views of homeownership, they will also likely
change preferences for different housing attributes. In, “What drives ‘green housing’
construction? Evidence from Switzerland,” Marco Salvi and Juerg Syz analyze the
demand for sustainable housing. They ?nd that the demand for sustainable housing
differs among the German-, French- and Italian-speaking Swiss population, a result that
again underscores the cultural differences in attitudes towards housing. A second
?nding is that government subsidies do not appear to increase the demand for
sustainable housing. Perhaps, this is because subsidies tend to be larger in areas with
little interest in sustainable housing or perhaps it is because those who want to build
green will do so without incentives.
Whether government policies should continue to encourage homeownership is a
question of growing importance. Despite the belief by many that homeownership
contributes to the vitality of a society, the simple correlation between homeownership
and a community’s well-being provides little support for this notion. More ownership is
not necessarily better and the papers in this issue reveal both the macro and micro
economic consequences of government policies that encourage homeownership. Moving
forward, we must also realize that the concept of what a house is will also likely change.
Whether a home is an investment or consumption good, large or small, green or not are
all questions that are likely to command our growing attention.
I would like to thank the editors of this journal, James Barth and John Jahera, for
inviting me to put together this special and timely issue of the Journal of Financial
Economic Policy ( JFEP). From the initial invitation to actual publication took little more
than nine months, which as we know in academia, is approaching warp speed. This
would not have been possible without the superlative effort and cooperation of all the
authors who continually met the editorially imposed deadlines. But quality was never
sacri?ced for speed, and each of the manuscripts went through a rigorous review
process. It is here that I must give my heartfelt thanks to the reviewers: James Follain,
Marja Elsinga, Clement Zhang, Steven Clark and Claire Crutchley. Their expertise and
insights greatly enhanced the manuscripts in this issue, and that they shared their
remarks in a swift timeframe, only adds to my appreciation. Finally, I would like to give
special thanks to the publisher, Valerie Robillard, who cheerfully answered all my
questions, and most importantly, offered encouragement throughout the entire editorial
process.
References
AEI (2010), International Home Ownership Rates: Testimony of Alex Pollack, AEI Fellow, before
the Subcommittee on Security and International Trade and Finance, American Enterprise
Institute for Public Policy Research, September 29, available at: www.aei.org/docLib/
Testimony-Comparison-International-Housing-Finance-Systems-Pollock.pdf
JFEP
3,1
10
D
o
w
n
l
o
a
d
e
d
b
y
P
O
N
D
I
C
H
E
R
R
Y
U
N
I
V
E
R
S
I
T
Y
A
t
2
1
:
4
0
2
4
J
a
n
u
a
r
y
2
0
1
6
(
P
T
)
Atterho¨g, M. (2005), “Importance of government policies for home ownership rates:
an international survey and analysis”, Working Paper No. 54, Royal Institute of
Technology, Stockholm.
Barreto, M., Marks, M. and Woods, N. (2007), “Homeownership: Southern California’s
new political fault line”, Urban Affairs Review, Vol. 42 No. 3, pp. 315-41.
Berson, D.W. and Neely, E. (1997), “Homeownership in the United States: where we’ve been;
where we’re going”, Business Economics, Vol. 32 No. 3, pp. 7-11.
Fisher, L. and Jaffe, A. (2003), “Determinants of international home ownership rates”, Housing
Finance International, September, pp. 34-42.
Hutchison, J. (1997), “Building for Babbitt: the state and the suburban home ideal”, Journal of
Policy History, Vol. 9 No. 2, pp. 184-210.
Rampell, C. (2009), “The happiest states of America”, New York Times, March 10.
US Census Bureau (2010), State Homeownership Rates, available at: www.census.gov/hhes/
www/housing/hvs/rates/index.html
US Department of Commerce (1923), How to Own Your Home: A Handbook for Prospective
Homeowners, US Department of Commerce, Washington, DC.
Data sources
Household Assets in the United States: Flow of Funds Account, Federal Reserve Bank,
Washington, DC.
US Households with Indoor Flush Toilets: video, “Inventing the Home,”, Learning Seed,
2003.
Corresponding author
Steve Swidler can be contacted at: [email protected]
Homeownership
11
To purchase reprints of this article please e-mail: [email protected]
Or visit our web site for further details: www.emeraldinsight.com/reprints
D
o
w
n
l
o
a
d
e
d
b
y
P
O
N
D
I
C
H
E
R
R
Y
U
N
I
V
E
R
S
I
T
Y
A
t
2
1
:
4
0
2
4
J
a
n
u
a
r
y
2
0
1
6
(
P
T
)
doc_587394529.pdf
The American Dream and homeownership are sometimes thought of as one and the same.
Abelief that homeownership is vital to the fabric of a vibrant society has led to government policies that
encourage homeownership. This suggests that homeownership and societal well-being are positively
related. However, empirical analysis does not support this positive relationship either within the USA or
across countries. This has important policy implications given the research in this special issue that
discusses the macro and micro economic consequences of government programs that promote
homeownership. Moving forward, we must consider both the private and public benefits of
homeownership and also realize that the very concept of what a house is will likely change. This paper
aims to discuss these issues.
Journal of Financial Economic Policy
Homeownership: yesterday, today and tomorrow
Steve Swidler
Article information:
To cite this document:
Steve Swidler, (2011),"Homeownership: yesterday, today and tomorrow", J ournal of Financial Economic
Policy, Vol. 3 Iss 1 pp. 5 - 11
Permanent link to this document:
http://dx.doi.org/10.1108/17576381111116786
Downloaded on: 24 January 2016, At: 21:40 (PT)
References: this document contains references to 9 other documents.
To copy this document: [email protected]
The fulltext of this document has been downloaded 397 times since 2011*
Users who downloaded this article also downloaded:
Beverley Searle, (2011),"Recession and housing wealth", J ournal of Financial Economic Policy, Vol. 3 Iss 1
pp. 33-48 http://dx.doi.org/10.1108/17576381111116867
Marco Salvi, J uerg Syz, (2011),"What drives “green housing” construction? Evidence from Switzerland",
J ournal of Financial Economic Policy, Vol. 3 Iss 1 pp. 86-102 http://dx.doi.org/10.1108/17576381111116777
Craig A. Depken, Harris Hollans, Steve Swidler, (2011),"Flips, flops and foreclosures: anatomy
of a real estate bubble", J ournal of Financial Economic Policy, Vol. 3 Iss 1 pp. 49-65 http://
dx.doi.org/10.1108/17576381111116759
Access to this document was granted through an Emerald subscription provided by emerald-srm:115632 []
For Authors
If you would like to write for this, or any other Emerald publication, then please use our Emerald for
Authors service information about how to choose which publication to write for and submission guidelines
are available for all. Please visit www.emeraldinsight.com/authors for more information.
About Emerald www.emeraldinsight.com
Emerald is a global publisher linking research and practice to the benefit of society. The company
manages a portfolio of more than 290 journals and over 2,350 books and book series volumes, as well as
providing an extensive range of online products and additional customer resources and services.
Emerald is both COUNTER 4 and TRANSFER compliant. The organization is a partner of the Committee
on Publication Ethics (COPE) and also works with Portico and the LOCKSS initiative for digital archive
preservation.
*Related content and download information correct at time of download.
D
o
w
n
l
o
a
d
e
d
b
y
P
O
N
D
I
C
H
E
R
R
Y
U
N
I
V
E
R
S
I
T
Y
A
t
2
1
:
4
0
2
4
J
a
n
u
a
r
y
2
0
1
6
(
P
T
)
EDITORIAL
Homeownership: yesterday,
today and tomorrow
Steve Swidler
Department of Finance, Auburn University, Auburn, Alabama, USA
Abstract
Purpose – The American Dream and homeownership are sometimes thought of as one and the same.
Abelief that homeownership is vital to the fabric of a vibrant society has led to government policies that
encourage homeownership. This suggests that homeownership and societal well-being are positively
related. However, empirical analysis does not support this positive relationship either within the USAor
across countries. This has important policy implications given the research in this special issue that
discusses the macro and micro economic consequences of government programs that promote
homeownership. Moving forward, we must consider both the private and public bene?ts of
homeownership and also realize that the very concept of what a house is will likely change. This paper
aims to discuss these issues.
Design/methodology/approach – The analysis examines the relation between the incidence of
homeownership and the well-being (happiness) of a community. The analysis is ?rst performed across
the 50 states and then is done on a cross-section of 26 countries.
Findings – The correlation coef?cient between home ownership rates and well-being are negative for
both the US and international data. The evidence does not support the belief that homeownership is
either necessary or suf?cient for societal well-being.
Originality/value – The paper presents some of the ?rst empirical analysis to examine the
relationship between homeownership and societal well-being. Other studies in this special issue
document both public and price costs to owning a home. Taken together, the special issue has important
implications for government policies that encourage homeownership.
Keywords Residential homes, United States of America, Societal organization, Private ownership
Paper type Research paper
Homeownership: yesterday, today and tomorrow
For many, the American Dream and the dream of owning one’s home are sometimes
thought of as one and the same (Barreto et al., 2007; Berson and Neely, 1997). Encouraged
by government policy, Americans have long aspired to home ownership. As a result,
many individuals own one or more homes making real estate a signi?cant holding in
their portfolio. In 2007, real estate represented 32.9 percent of all household assets in the
USA, and after subtracting outstanding mortgages, contributed $12.8 trillion to
household net worth (Flow of Funds Accounts of the United States).
While some point to the Homestead Act signed by Abraham Lincoln in 1862 as
the ?rst major push by the federal government to promote homeownership, others
refer to Herbert Hoover’s “Own Your Own Home” campaign as the start of federal
involvement (Hutchison, 1997). First as Secretary of Commerce and later as President of
the USA, Hoover helped forge a partnership between the federal government and the
construction industry, and he also championed new long-term mortgages offered by
banks and savings and loans. In a pamphlet published by the government
(US Department of Commerce, 1923), Hoover reasoned that:
The current issue and full text archive of this journal is available at
www.emeraldinsight.com/1757-6385.htm
Homeownership
5
Journal of Financial Economic Policy
Vol. 3 No. 1, 2011
pp. 5-11
qEmerald Group Publishing Limited
1757-6385
DOI 10.1108/17576381111116786
D
o
w
n
l
o
a
d
e
d
b
y
P
O
N
D
I
C
H
E
R
R
Y
U
N
I
V
E
R
S
I
T
Y
A
t
2
1
:
4
0
2
4
J
a
n
u
a
r
y
2
0
1
6
(
P
T
)
[T]he present large proportion of families that own their own homes is both the foundation of a
sound economic and social system and a guarantee that our society will continue to develop
rationally as changing conditions demand.
Despite Hoover’s policies, the percentage of householders who owned their homes in
1930 was 47.8 percent, little more than the 45.6 percent rate in 1920. In fact, the
percentage in 1930 was identical to the homeownership rate 40 years earlier. It was not
until the end of Second World War that homeownership rates rapidly increased. Spurred
by the creation of the Federal National Mortgage Association (Fannie Mae) and a
secondary market for mortgages along with bene?ts stemming from the G.I. Bill,
homeownership jumped to 55 percent in 1950 and 61.9 percent in 1960. After climbing to
64.4 percent in 1980, housing rates did not appreciably rise until the mid-1990s, peaking
at 69.2 percent in the last quarter of 2004.
What started with Hoover’s belief that homeownership is the cornerstone of a vibrant
society was echoed more recently by George Bush:
[. . .] if you own something, you have a vital stake in the future of our country. The more
ownership there is in America, the more vitality there is in America, and the more people have a
vital stake in the future of this country ( June 17, 2004).
In promoting an “Ownership Society,” Bush initiated policies intended to increase
homeownership of minorities and lower income individuals.
Given the recent crisis in housing, the natural question to ask is should everyone
own a home? One way to begin answering this question is to examine the relationship
between homeownership and some measure of happiness or well-being.
If homeownership is vital to the fabric of our society, it should result in a more
content and happy population.
To see if happiness is positively correlated with homeownership, Table I lists two
wellness measures (source: Gallup-Healthways) and homeownership for each of the
50 states (US Census Bureau, 2010, quarter 3). The Well Being index is a composite
measure based on 40 survey questions covering such things as access to life necessities,
workplace environment, healthy behavior and physical and emotional health. Life
Evaluation, included in the Well Being index but broken out here as an alternative
wellness measure, seeks to evaluate an individual’s present life with their anticipated
life ?ve years from now.
Comparing the two wellness measures to state homeownership rates reveals that
both are negatively, not positively, related to homeownership. While correlation does not
imply causation, there is little support for the notion that home ownership in the USA
contributes to happiness. Table I further reveals that states with the lowest
homeownership include some of the highest price states (California, Hawaii and
New York), while high homeownership is found in states with some of the lowest prices
(Mississippi, South Carolina and West Virginia). As it turns out, well-being measures are
positively associated with household income (Rampell, 2009), so that if home prices and
income are also positively related, the result that homeownership rates are inversely
related to happiness is not surprising.
If homeownership does not contribute to happiness in the USA, is the same true
around the world? Similar to circumstances in the USA, Fisher and Jaffee (2003) examine
international data and ?nd a negative correlation between income (GDP per capita) and
homeownership rates. However, they ?nd it dif?cult to model homeownership rates
JFEP
3,1
6
D
o
w
n
l
o
a
d
e
d
b
y
P
O
N
D
I
C
H
E
R
R
Y
U
N
I
V
E
R
S
I
T
Y
A
t
2
1
:
4
0
2
4
J
a
n
u
a
r
y
2
0
1
6
(
P
T
)
State Well-being Life eval. Home own (%)
Alabama 64.9 42.4 74.9
Alaska 66.2 43.9 64.9
Arizona 66.8 44.3 65.4
Arkansas 62.9 33.9 66.1
California
a
67 43.2 56.2
Colorado 67.3 44.9 69.1
Connecticut 66.3 39.6 69.4
Delaware
b
64.7 39.5 75.8
Florida 65.3 39.7 68.3
Georgia 66 44.5 67.6
Hawaii
a
68.2 48.6 54.7
Idaho 66.8 41.2 72.3
Illinois 65.2 40.4 68.7
Indiana 63.3 35.9 70.1
Iowa 65.6 36.9 70.4
Kansas 66.1 39.8 67.7
Kentucky 61.4 30.9 70.0
Louisiana 64.2 42.3 71.1
Maine 65.5 33.2 74.3
Maryland 67.1 46.8 68.8
Massachusetts 67 42.3 67.1
Michigan
b
64 36.7 75.4
Minnesota 67.3 40 74.3
Mississippi
b
61.9 38.8 77.5
Missouri 63.8 35 71.9
Montana 66.7 39.8 67.0
Nebraska 66.4 40.7 70.5
Nevada
a
64.5 39.8 59.7
New Hampshire 66.7 39.3 74.9
New Jersey 65.8 40.1 64.0
New Mexico 66.3 41.4 67.5
New York
a
64.7 38.3 54.6
North Carolina 64.8 40 70.7
North Dakota 65.5 34.9 65.5
Ohio 62.8 34.1 70.1
Oklahoma 64 36.9 69.7
Oregon 66.3 39.7 66.7
Pennsylvania 64.9 36.2 71.8
Rhode Island
a
64.6 36.7 62.9
South Carolina
b
65.7 42.3 76.4
South Dakota 64.3 35 70.8
Tennessee 64 37 71.7
Texas 66.1 44.6 64.7
Utah 69.2 48.3 72.9
Vermont 66.6 40.3 73.2
Virginia 66.5 43.4 69.1
Washington 67.1 42.9 63.9
West Virginia
b
61.2 29.5 78.2
Wisconsin 65.9 37.8 71.7
Wyoming 68 45 74.2
Notes: Correlation coef?cient between well-being and home ownership ¼ 20.2537; correlation coef?cient
between life evaluation and home ownership ¼ 20.2821;
a
states with the lowest homeownership rates;
b
states
with the highest homeownership rates
Sources: Well Being and Life Evaluation Index Values: Gallup-Healthways Index (www.ahiphiwire.org/
WellBeing/Tools/Table.aspx); State Homeownership Rates: US Census Bureau (www.census.gov/hhes/www/
housing/hvs/rates/index.html)
Table I.
Well-being and
homeownership – USA
Homeownership
7
D
o
w
n
l
o
a
d
e
d
b
y
P
O
N
D
I
C
H
E
R
R
Y
U
N
I
V
E
R
S
I
T
Y
A
t
2
1
:
4
0
2
4
J
a
n
u
a
r
y
2
0
1
6
(
P
T
)
across countries and argue that “one cannot understand a homeowner’s behavior
without evaluating the range of institutions affecting housing markets and consumer
choices.” Presumably, these institutions include government policies that often
encourage homeownership (Atterho¨g, 2005). While not directly addressing the issue of
happiness, Fisher and Jaffees’ work suggests that any link between measures of
well-being and homeownership may be dif?cult to explain cross culturally.
To see if happiness and homeownership are related in an international setting,
Table II considers the homeownership rate of 26 countries (source: Pollack, 2010).
Homeownership is againcomparedto two measures of happiness. The ?rst is the Human
Development Index (HDI) published by the United Nations Development Programme
and the second is a happiness index based on a Gallup survey showing the percentage of
the population that is “thriving” Once again, both measures of well-being are inversely
related to homeownership rates. Remarkably, Singapore with the lowest percentage of
thriving citizens has the highest homeownership rate, while a very “happy” Denmark
has one of the lowest homeownership rates. Thus, even the international evidence does
Country HDI Happy thrive (%) Home own (%)
Singapore 0.846 19 89
Spain 0.863 36 85
Iceland 0.869 47 83
Belgium 0.867 56 78
Norway 0.938 69 77
Portugal 0.795 22 76
Luxembourg 0.852 45 75
Ireland
a
0.895 54 75
Chile 0.783 41 73
Italy 0.854 39 72
Israel 0.872 62 71
Australia 0.937 62 70
England
b
0.849 54 68
Canada 0.888 62 68
Sweden 0.885 68 68
New Zealand 0.907 63 68
USA 0.902 57 67
Japan 0.884 19 61
Finland 0.871 75 59
Czech Republic 0.841 39 59
France 0.872 35 57
The Netherlands 0.890 68 57
Austria 0.851 57 56
Denmark 0.866 82 54
Germany 0.885 43 46
Switzerland 0.874 62 35
Notes: Correlation coef?cient between HDI and home ownership ¼ 20.1218; correlation coef?cient
between happy/thrive and home ownership ¼ 20.3243;
a
happy value is for the UK;
b
HDI and happy
values are for the UK
Sources: HDI: United Nations Development Programme (http://hdr.undp.org/en/statistics/data/);
Country Happy-thrive Rates: Gallup World Poll (www.gallup.com/poll/126977/global-wellbeing-
surveys-?nd-nations-worlds-apart.aspx); AEI (2010)
Table II.
Well-being and
homeownership –
international
JFEP
3,1
8
D
o
w
n
l
o
a
d
e
d
b
y
P
O
N
D
I
C
H
E
R
R
Y
U
N
I
V
E
R
S
I
T
Y
A
t
2
1
:
4
0
2
4
J
a
n
u
a
r
y
2
0
1
6
(
P
T
)
not appear to support the notion that homeownership directly contributes to a society’s
well-being.
Of course, one reason why the link between homeownership and well-being may be
weak is that ownership rates do not capture either the size or quality of housing. It is
doubtful, for example, that the typical home in Singapore is similar to those in Denmark.
Thus, doing a simple cross-sectional analysis of country homeownership is like
comparing apples to oranges. Even in a time series study, it is dif?cult to capture
differences in housing attributes. Consider indoor plumbing in the USA. In 1860,
1 percent of households had inside ?ush toilets. This increased to 20 percent in 1920,
60 percent in 1940 and over 99 percent today (Source: Learning Seed, 2003).
Despite there being little empirical support for the belief that homeownership is vital
to the fabric of society and leads to societal well-being, government policies in many
nations continue to encourage homeownership. These policies contributed to the recent
housing crisis, causing a signi?cant decline in household wealth and ultimately a
world-wide recession. As we move forward, this latest experience is sure to affect how
we think about housing as both an investment and consumption good.
The articles in this special issue on housing touch on the many themes of
homeownership. In, “The ?nancial crisis: imperfect markets and imperfect regulation,”
Richard J. Buttimer Jr documents the evolution of the US housing ?nance market and
discusses the role that the Federal National Mortgage Association (Fannie Mae) and
Federal Home Mortgage Corporation (Freddie Mac) played in the recent crisis. With the
development of the secondary mortgage market, housing became more affordable to a
greater number of Americans. Oversight of the two government-sponsored entities
(GSE) passed from one federal authority to the next, but always the message was to
increase homeownership. While this led to an expansion of subprime lending, Buttimer
argues that regulators did not, and perhaps could not, anticipate that the collapse of the
subprime market would eventually cause a meltdown of the entire ?nancial system.
The capital reserves of ?nancial institutions were not suf?cient to ride out the crisis and
the seizing of credit markets paved the way for a world-wide recession.
While the ?rst paper touches upon the macro-economic implications of the housing
market collapse, Beverley Searle considers the effect of falling home values on household
welfare. In, “Recession and housing wealth,” she uses a unique set of data drawn from
the British Household Panel Survey to examine household behavior in a time of
diminished housing wealth. Searle documents the changing role of housing wealth from
an investment vehicle to a ?nancial safety net and shows that housing tends to be used
only after other lines of credit are exhausted.
The risks associated with housing wealth are also the focal point of the next two
articles. In, “Flips, ?ops and foreclosures: anatomy of a real estate bubble,”
Craig A. Depken II, Harris Hollans and Steve Swidler, use property tax records to
trace the housing boomand bust in the Las Vegas metropolitan area. At the height of the
bubble, a signi?cant percentage of home sales involved ?ipping activity, the buying and
quick reselling of property in anticipation of pro?ts. Speculation caused prices to rise
dramatically, resulting in an overbuilt market and ultimately a record number of
foreclosures. This recent episode represents one of the darkest sides to government
policies that encourage homeownership.
To what extent house price risk can be managed is the subject of, “home equity
insurance.” Dag Einar Sommervoll and Gavin Wood use housing market transactions
Homeownership
9
D
o
w
n
l
o
a
d
e
d
b
y
P
O
N
D
I
C
H
E
R
R
Y
U
N
I
V
E
R
S
I
T
Y
A
t
2
1
:
4
0
2
4
J
a
n
u
a
r
y
2
0
1
6
(
P
T
)
in the Melbourne metropolitan area to derive a repeat sales index. They then compare
experiential returns from owning a home to the contemporaneous return of the index.
Given a minimum time of ownership, Sommervoll and Wood ?nd that no more than
50 percent of owners that lose money on their homes are likely to receive an insurance
payout. While target ef?ciency (the probability of payout given a loss) increases if the
payout is a function of a neighborhood index, the idiosyncratic component of housing
returns remains high and suggests that house price insurance will likely be unattractive
for many homeowners.
As individuals begin to change their views of homeownership, they will also likely
change preferences for different housing attributes. In, “What drives ‘green housing’
construction? Evidence from Switzerland,” Marco Salvi and Juerg Syz analyze the
demand for sustainable housing. They ?nd that the demand for sustainable housing
differs among the German-, French- and Italian-speaking Swiss population, a result that
again underscores the cultural differences in attitudes towards housing. A second
?nding is that government subsidies do not appear to increase the demand for
sustainable housing. Perhaps, this is because subsidies tend to be larger in areas with
little interest in sustainable housing or perhaps it is because those who want to build
green will do so without incentives.
Whether government policies should continue to encourage homeownership is a
question of growing importance. Despite the belief by many that homeownership
contributes to the vitality of a society, the simple correlation between homeownership
and a community’s well-being provides little support for this notion. More ownership is
not necessarily better and the papers in this issue reveal both the macro and micro
economic consequences of government policies that encourage homeownership. Moving
forward, we must also realize that the concept of what a house is will also likely change.
Whether a home is an investment or consumption good, large or small, green or not are
all questions that are likely to command our growing attention.
I would like to thank the editors of this journal, James Barth and John Jahera, for
inviting me to put together this special and timely issue of the Journal of Financial
Economic Policy ( JFEP). From the initial invitation to actual publication took little more
than nine months, which as we know in academia, is approaching warp speed. This
would not have been possible without the superlative effort and cooperation of all the
authors who continually met the editorially imposed deadlines. But quality was never
sacri?ced for speed, and each of the manuscripts went through a rigorous review
process. It is here that I must give my heartfelt thanks to the reviewers: James Follain,
Marja Elsinga, Clement Zhang, Steven Clark and Claire Crutchley. Their expertise and
insights greatly enhanced the manuscripts in this issue, and that they shared their
remarks in a swift timeframe, only adds to my appreciation. Finally, I would like to give
special thanks to the publisher, Valerie Robillard, who cheerfully answered all my
questions, and most importantly, offered encouragement throughout the entire editorial
process.
References
AEI (2010), International Home Ownership Rates: Testimony of Alex Pollack, AEI Fellow, before
the Subcommittee on Security and International Trade and Finance, American Enterprise
Institute for Public Policy Research, September 29, available at: www.aei.org/docLib/
Testimony-Comparison-International-Housing-Finance-Systems-Pollock.pdf
JFEP
3,1
10
D
o
w
n
l
o
a
d
e
d
b
y
P
O
N
D
I
C
H
E
R
R
Y
U
N
I
V
E
R
S
I
T
Y
A
t
2
1
:
4
0
2
4
J
a
n
u
a
r
y
2
0
1
6
(
P
T
)
Atterho¨g, M. (2005), “Importance of government policies for home ownership rates:
an international survey and analysis”, Working Paper No. 54, Royal Institute of
Technology, Stockholm.
Barreto, M., Marks, M. and Woods, N. (2007), “Homeownership: Southern California’s
new political fault line”, Urban Affairs Review, Vol. 42 No. 3, pp. 315-41.
Berson, D.W. and Neely, E. (1997), “Homeownership in the United States: where we’ve been;
where we’re going”, Business Economics, Vol. 32 No. 3, pp. 7-11.
Fisher, L. and Jaffe, A. (2003), “Determinants of international home ownership rates”, Housing
Finance International, September, pp. 34-42.
Hutchison, J. (1997), “Building for Babbitt: the state and the suburban home ideal”, Journal of
Policy History, Vol. 9 No. 2, pp. 184-210.
Rampell, C. (2009), “The happiest states of America”, New York Times, March 10.
US Census Bureau (2010), State Homeownership Rates, available at: www.census.gov/hhes/
www/housing/hvs/rates/index.html
US Department of Commerce (1923), How to Own Your Home: A Handbook for Prospective
Homeowners, US Department of Commerce, Washington, DC.
Data sources
Household Assets in the United States: Flow of Funds Account, Federal Reserve Bank,
Washington, DC.
US Households with Indoor Flush Toilets: video, “Inventing the Home,”, Learning Seed,
2003.
Corresponding author
Steve Swidler can be contacted at: [email protected]
Homeownership
11
To purchase reprints of this article please e-mail: [email protected]
Or visit our web site for further details: www.emeraldinsight.com/reprints
D
o
w
n
l
o
a
d
e
d
b
y
P
O
N
D
I
C
H
E
R
R
Y
U
N
I
V
E
R
S
I
T
Y
A
t
2
1
:
4
0
2
4
J
a
n
u
a
r
y
2
0
1
6
(
P
T
)
doc_587394529.pdf