New renters will outpace new homeowners in the next decade and a half and the homeownership rate will decline even though there will be more homeowners than renters, thus creating intense competition for rental housing, according to a study released by the Urban Institute (UI) this week.
The report found that the 20 million new seniors in the country by 2030 will require some sort of policy change in order to remain in their homes, and also that African-Americans will fall behind in the housing market while the rates of homeownership will improve for Hispanics.
The study, titled "Headship and Homeownership: What Does the Future Hold?" by Laurie Goodman, Rolf Pendall, and Jun Zhu, covers patterns of household formation and homeownership rates in the two decades from 2010 to 2030. The authors concluded based on those estimates that "we do not have adequate policies in place to support the rental surge and adequate affordable rental housing and homeownership for all, regardless of race and ethnicity."
The report examines the role of millennials in the housing market over the next 15 years. Millennials, widely viewed by economists as a key driver to homeownership over the coming years, are expected to choose renting more than homeownership in the next 15 years. UI estimates that only 38 percent of millennials will own a home by 2030 when they have reached their prime homebuying age – compared with 38 percent of baby boomers who owned homes when they were the same age in the 1990s. The study also found that the pace at which people create new households, known as the headship rate, has been steadily declining since for every age group except the oldest Americans since reaching its peak in 1980 and will continue declining for the next 15 years.
Also according to the UI, 43 percent of new households formed from 2010 to 2030 will be Hispanic, compared to 18 percent that will be White. More than half of the new homeowners are expected to be Hispanic, compared to only 7 percent that are expected to be White. The percentage of non-White households being formed will greatly increase in the next 15 years; UI estimates that 77 percent of the 11.6 million new households formed between 2010 and 2020 will be non-White. That number jumps to 88 percent of the 10.4 million new households formed between 2020 and 2030. The homeownership rate for Hispanics is expected to increase from 46 percent to 48 percent from 2000 to 2030, while the rate for African-Americans is expected to drop during that same 30-year period from 46 percent to 40 percent.
"The gap between Hispanics' and African Americans' homeownership rates will grow," the authors of the study said. "African Americans were hit hardest in the housing crisis and will see a large decline in their homeownership rates regardless of economic growth."
The UI estimates that by 2030, 74 percent of homeowners over age 65 will be White, substantially higher than 56 percent of those under 65 that are projected to be White.
Overall, from 2010 to 2030, UI estimates there will be four million more renters than homeowners while the homeownership rate falls from 65.1 percent down to 61.3 percent during that 20-year period. In that time, 22 million new households will need homes to rent or buy; UI estimates that 13 million of those will rent while nine million will buy. Also, the homeownership rate among 35- to 44-year-olds is expected to be 55.2 percent in 2030, which is a decline from 67.4 percent 40 years earlier in 1990.
In order to increase the homeownership rates in the next 15 years, UI recommends three policy changes: Encourage the building of suitable rental housing to meet demand; expanding mortgage credit availability to encourage homeownership, which will in turn reduce the shortage of rental housing; and develop policies that will allow seniors to keep their homes, "as most want to do."