Homeownership allows families to build wealth, obtain a measure of financial security, and reduce financial risk in retirement. But in a recent paper published in the Journal of Economic Perspectives, we found that the United States’ homeownership rate has lost ground compared with other developed countries for which we could obtain a full dataset.
In 1990, the United States ranked 10th of the 18 countries, solidly in the middle of the group and, with a 63.9 percent homeownership rate, just above the average. By 2015, however, the US was the fifth lowest, with a rate of 63.7 percent, well below the 69.6 percent average.
Why is the US homeownership rate on the low end in the developed world? Between 1990 and 2015, 13 of the 18 countries increased their homeownership rates, while the US rate remained unchanged. Global interest rates fell, making access to homeownership easier.
Despite the weak performance of the US homeownership rate, the pattern of homeownership by age is similar between the US and the five most-populous European countries, as shown in the figure below.
The homeownership rate peaks at 75 to 90 percent for households ages 65 to 74 in most countries. The current rate for this age group in the US is about 80 percent.
Home equity is a huge source of retirement wealth in the US and in the most-populous European countries. But the US curve tends to be steeper than for many other countries with lower homeownership rates for people ages 44 and younger.
In fact, US homeownership rates have fallen sharply for households ages 44 and younger. But in the past year, this rate has begun to rise, with the largest increases for households headed by someone younger than age 35. Even so, the rate remains historically low.
International differences reveal varying approaches to homeownership
It is difficult to make cross-country comparisons, as each country has its own culture, demographics, and policies. Countries like France and Germany have homeownership rates that are lower than average, robust public pensions, and private defined contribution systems.
In Germany, protections for renters ensure that rental prices do not skyrocket. In Switzerland, the imputed rent from one’s home is taxed, and the higher costs of owning compared with renting help explain why Switzerland has a low homeownership rate, despite a generous mortgage interest deduction.
In contrast, the homeownership rate is high in the Czech Republic, Finland, Ireland, Italy, Slovenia, Spain, and Sweden, countries where homeownership costs are low compared with renting. Homeownership rates in the UK and the US are similar, even though the US has a mortgage interest deduction, while the UK subsidizes renting through its large stock of social and affordable rentals (about 17 percent of housing units are classified as “social or affordable rental stock”).
While cross-country comparisons are difficult, the slip in US homeownership relative to the rest of the world, and the historically low homeownership rates for Americans ages 44 and younger, should motivate us to look at US housing policies. The current US credit environment makes it difficult for anyone with less than pristine credit to obtain a mortgage and has resulted in the loss of approximately 6.3 million mortgages between 2009 and 2015.