The economy doesn't need more homeowners right now. It needs more households.
In the midst of the recession, millions of Americans began to "double up," in the language of demographers: Parents moved in with their children, recent college graduates returned home with their parents, unrelated families combined households, while single adults who might otherwise have lived on their own found a room to rent instead.
We seldom describe these people this way, but they essentially dropped out of the housing market, in precisely the same way that would-be workers who give up on finding a job "drop out" of the labor pool.
Now, six years after the recession began, many of these people have yet to re-emerge – to move out of the basement or the spare bedroom, to form their own households. And as Jed Kolko, chief economist at Trulia, pointed out in The New York Times last week, this "doubled up" population points to a key flaw in how we think about America's homeownership rate.
That figure has been declining since about 2005, and on Friday the Census Bureau confirmed that it was still languishing. At the end of 2013, the homeownership rate was 65.2 percent, down slightly from where it had been a year earlier and still down substantially from the all-time high:
That picture matters because homeownership trends are generally taken as an indicator of the health of the broader economy. But consider one of the most significant sub-groups in that doubled-up population: young adults who've been waiting to find jobs and move out of their parents homes. Most of them won't immediately become homeowners – they'll be renters. And the developers who build rental housing appear to be preparing for them in droves.
"You would never guess from the falling homeownership rate that there’s right now a big boom in apartment rental construction, but there is," Kolko says by phone. "At the extreme, if all that were happening right now in the housing market were young people moving out of their parents' homes into rentals, that would clearly be good for the economy. That would stimulate a lot of apartment building construction. And there would be no change in the number of homeowners."
In fact, the homeownership rate might actually go down as a result.
That statistic specifically calculates the share of households in America that are owned. So if the number of households (the denominator) rises thanks to new renter household formation, while the number of homeowners (the numerator) stays the same, it would look as if homeownership were declining. Conversely, if every renter in America moved in with someone who owns their home, we'd have a lot fewer total households (to the chagrin of the construction industry). But we'd have a magnificent homeownership rate of 100 percent.
In the context of jobs, this is why economists – and skeptical reporters – look at the labor force participation rate. The unemployment rate in America has been declining for the last several years. But that doesn't simply mean that lots of people have found jobs. It also means that lots of people have given up on finding one (lowering the denominator of people who are working now or looking for work).
Declining unemployment can be deceptive, as can declining homeownership. We don't typically bring this same skepticism, though, to homeownership statistics. But, as Kolko points out, there is a way to do this. We can look at a more obscure statistic called the "headship rate," which reflects the share of all people who head a household. As more people double up, the headship rate goes down. As more twenty-somethings move out of their parents' homes and into their own one-bedrooms and studios, the headship rate will go up.
If you work in the housing construction industry, this is the number you care about. When the headship rate goes up, that stimulates demand for new housing. And that can happen even as the homeownership rate goes down.
The government doesn't currently produce a single, official headship statistic in the same way it does with labor force participation (the number looks a little different depending on which Census data you rely on to produce it). But the government probably should, because this one data point has value for two big reasons: It gives us a fuller picture of what's going on with homeowners. And it tells us something about the health of the housing market without implying that everyone should aspire to own a home.
If you're agnostic on this point – if you think we should stop behaving in America as if homeownership were the ultimate sign of personal financial responsibility – then the headship rate recognizes that renters are a crucial part of the picture, too. A housing recovery will be good for the economy. But that's not because more people will own homes; it's because we'll need to build more homes, regardless of whether the people living inside own them or not.
Top image of a worker constructing new housing in Alexandria, Virginia: Kevin Lamarque/Reuters.