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Is that a Fact?

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Reading William Greider is one of my guilty pleasures. Credit where credit is due: The guy can write. And the content is interesting, blending fun facts about the economy with bizarre interpretations thereof.

Sometimes, however, I wonder whether his "facts" are even true. This one from Who Will Tell the People? (1992) caught my eye:

[The S&L's] provided a discreet subsidy for home buyers, regardless of their economic status, and, for forty years, the system worked: Home ownership steadily increased among American families. It was stopped in 1980 with the deregulation of interest rates - and home ownership has decreased among Americans every year since.

Never mind why you would want to subsidize home ownership in the first place. Never mind that it is already heavily subsidized by the tax code. Never mind all of the other factors going on in the U.S. economy during the 1980's. My question: Is it even true that homeownership decreased every year from 1980 to 1991 (the year before publication)?

Not according to the Census' statistics on home ownership. Here are the annual national numbers:

Year   Homeownership Rates
1980   65.6%
1981   65.4%
1982   64.8%
1983   64.6%
1984   64.5%
1985   63.9%
1986   63.8%
1987   64.0%
1988   63.8%
1989   63.9%
1990   63.9%
1991   64.1%

As you can see, rates rose in 1987 and again in 1991. And the change he laments sums to about 1.5 percentage points. I suspect most people who looked at the raw data would have summarized home ownership rates as "stable."

Well, maybe he did fact-checking in 1987, then moved on to other projects. It's a lot more interesting to see if the trend he blamed on deregulation continued. Economists call that an "out-of-sample" test. So what happened?

Answer: As of 2004, home ownership rates stood at 69.0% - an all-time high.

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The author at Half Sigma in a related article titled Do too many people own homes? writes:
    There’s some home ownership data posted at EconLog by Bryan Caplan. From 1991 to 2004, home ownership rose from 64% to 69%, a pretty big increase considering that home ownership was “stable” between 1980 and 1991. There is no [Tracked on May 18, 2005 6:48 AM]
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Jim Erlandson writes:

And if you look at just the number of owner occupied homes (thousands) ...

1965 ... 36,230
1970 ... 40,834
1975 ... 46,463
1980 ... 52,223
1985 ... 56,152
1990 ... 60,248
1995 ... 64,739
2000 ... 72,593

The number of owner occupied homes doubled between 1965 and 2000 while the US population increased just 45%. It would be interesting to know the homeowner equity in those 72+ million homes.

Bernard Yomtov writes:

I'm not so sure I would call it a subsidy. The S&L's were able to make mortgage loans at fairly low rates because the rates S&L's and banks paid depositers were limited by regulation. So the low mortgage rates were at the expense of small savers.

dylan writes:

I quickly googled historic mortgage rates and see a steady increase begining in the 1770 (7.5 avg) continuing to ramp up to 11.2 (avg) in 1979.There is a rapid 3 year increase until '83(avg around 16.5, but year ending at 13.6) then the rates continue down from around 13.6 to 9.6 around '90. This doesn't (to my uneducated eye) to indicate any real problem (particularly long-term) with deregulation, but seems to follow inflation and high interest rates of the period.

Also, can someone explain what the subsidy was (I am too lazy to google more)? Thanks.

Bob Knaus writes:

Bernard points out the subsidy. It wasn't direct out of the government's general fund of course! But regulated interest rates and tax policies accomplished the same thing.

When I was a kid in the mid-70's, banks paid 5% on passbook accounts and S&Ls paid 5.25%. Being from a thrifty farm family, of course we saved at an S&L. S&Ls could still be profitable even with higher passbook rates because they were not taxed on profits as banks were. In essence, they were mutuals. However, they were prohibited from commercial lending.

It was the bad old days, for a host of reasons. But that doesn't keep some people from waxing nostalgiac for them.

Jim Erlandson writes:

Raw data (30-year conventional mortgage rate) is available here with a nice chart (1970-2004) here courtesy of the St. Louis Fed.

And if you're really interested in numbers and charts, FRED II "a database of over 3000 U.S. economic time series" is available here.

spencer writes:

I do not think regulation Q subsidized housing.

What Reg Q did was introduce non-price competition in the mortgage market. Under Reg Q when rates exceeded the ceiling the supply of mortgages was turned off --the supply fell almost to zero. What this meant was that the impact of a Fed tightening kicked into the housing market with a vengence when rates rose above the ceiling.

The removal of Reg Q meant that the supply and demand for mortgages became strictly a function of price in a relatively free market. What we found was that the price elasticity of demand for mortgages was much lower then generally expected. Consequently, in the late 1970s- early 1980s interest rates had to go much higher then anyone had expected for fed policy to dampen housing and the economy. PS., this was the real reason behind the S&L disaster -- everyone had assumed that there was little rate risk for the S&Ls as it had been under REg Q but without Reg Q that was not true.

Reg Q but a ceiling on mortgages, so in that way it subsidized housing. But the consequence was that the supply at the higher rate was near zero. I would not call that a subsidy.

Frank writes:

A hunch--the stable/slightly falling homeownership rate in the 1980s followed by the increasing rate in the 1990s and 2000s reflects the life cycle of the baby boomers. Many boomers were still young in the 80s and rented rather than owned. By the 90s aging boomers put down roots and bought homes.

randy writes:

User costs, baby, user costs. Tax rates do influence these -- but they are mainly driven by interest rates and expected home price appreciation.

yes, I do have a paper.

Lancelot Finn writes:

Slightly off-topic: While it's mostly stupid to subsidize homeownership, there may be a hidden benefit. The more people own land, the more people have a stake in land values staying high or rising. And one thing that drives up land values is immigration. This should, in theory, offset the bias against immigration that results from the median voter's lifetime resources being concentrated in labor. Whether things go that way in practice, or will in the future, I'm not sure.

spencer writes:

It is interesting that I'm seeing arguments here that subsidizing home ownership is bad by many of the same people that are using almost identical arguments in favor of private social security accounts.

Subsidizing housing has both good and bad consequences. One benefit is to give individuals a stake in the mixed capitalist system, and on balance that may very well be a good trade off.
Subsidizing private SS accounts may have similiar benefits.

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