Josh Rosner has uploaded to twitter The National Homeownership Strategy: Partners in the American Dream, a HUD document from May 1995. I stumbled on it a few years back when writing Gambling with Other People’s Money. But I haven’t read it in a while. The first page is a “Message from the President,” President Clinton. It begins:
Our nation’s greatest promise has always been the chance to build a better life. For millions of America’s working families throughout our history, owning a home has come to symbolize the realization of the American Dream. Yet sadly, in the 1980s, it became much harder for many young families to buy their first home, and our national homeownership rate declined for the first time in forty-six years. Our Administration is determined to reverse this trend, and we are committed to ensuring that working families can once again discover the joys of owning a home.
This past year, I directed HUD Secretary Henry G. Cisneros to work with leaders in the housing industry, with nonprofit organizations, and with leaders at every level of government to develop a plan to boost homeownership in America to an all-time high by the end of this century. The National Homeownership Strategy: Partners in the American Dream outlines a substantive, detailed plan to reach this goal. This report identifies specific actions that the federal government, its partners in state and local government, the private, nonprofit community, and private industry will take to lower barriers that prevent American families from becoming homeowners. Working together, we can add as many as eight million new families to America’s homeownership rolls by the year 2000.
It worked for a while. Home ownership increased. Then it didn’t work. Home ownership fell and a recession ensued. We’re still paying the price. The report is worth reading in some detail because it gives you a feel for the scope of the government effort. The federal government, the state governments, the GSE’s (Fannie and Freddie) all were encouraged to work together. There are 100 action items in the report. Any one of them might be an OK bit of public policy. Together, they helped create the housing boom and the housing bust. Yes, as I have written many times, they needed the money of Wall Street (and maybe the Fed) to really make a really big mess. But this document will give you an idea of why Wall Street’s money (and the Fed’s) flowed to this sector rather than elsewhere. As an example, read Chapter 4 that encourages and lauds low down-payment loans and underwriting “flexibility.”
One lesson we might learn is that private-public partnerships are dangerous. The other lesson we might learn is how to think about data. What was the alleged impetus for a national strategy to increase home ownership?
Yet sadly, in the 1980s, it became much harder for many young families to buy their first home, and our national homeownership rate declined for the first time in forty-six years.
Here is the chart of home ownership from 1965 to 2009. I’ve taken it from a Deloitte report but the data are from the Census Bureau:
You can see the rate decline from the late 1970s and stagnate into the early 1990s. Then in 1995, it takes off as the National Homeownership Strategy is launched. It could be a coincidence or it could be that the strategy actually worked for a while. The crash comes around 2005. By 2009, the rate was back on the trend that existed before the fall in the late 1970s. After the foreclosure mess eventually plays out, the home ownership rate will probably be back below that trend.
The picture seems to reinforce the claim by Clinton that “it became much harder for many young families to buy their first home.” After all, the home ownership rate fell, didn’t it?
But something else happened in the 1970s that may explain the decline in home ownership. As I have observed before, the divorce rate rose in the 1970s and there was a big increase in the number of households. In the 1970s, population increased 11.5% but the number of households increased 26.7%. (see the chart here.) Most of those new households were single people, newly divorced. They rented. They didn’t buy their own house. So the home ownership rate fell because the divorce rate rose, not because it became harder to buy a home in any fundamental sense. What a costly error of interpretation.
As F.A. Hayek observed in The Fatal Conceit: “The curious task of economics is to demonstrate to men how little they really know about what they imagine they can design.”