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The Influence of Household Formation On Homeownership
Rates Across Time and Race (October 2004, 44 p.)
Homeownership rates equal the number of households that own
homes divided by the number of households in the population.
For that reason, differences in the propensity to form a household,
or the headship rate, have the potential to explain observed
changes in homeownership rates over time in addition to longstanding
racial gaps in homeownership. In this regard, it should be
emphasized that “headship” refers to whether an
individual is identified in the Census as a household head.
Thus, for example, a spouse or child of the household head
would both be considered members of the household, but not
the household head. We examine these questions on an age-specific
basis using data from the 1970 to 2000 public use micro samples
(PUMS) of the decennial census.
Summary measures indicate that age-specific homeownership
rates changed little from 1990 to 2000, in contrast to the
much advertised increase in aggregate homeownership rates
over this period. This is consistent with evidence reported
by Eggers (2004, Tables 1 and 2) when he restricts his analysis
to just the relationship between household age and the propensity
for homeownership using the 1990 and 2000 Censes. Looking
over a longer time frame, from 1970 to 2000, age-specific
homeownership rates fell by 5 percentage points for individuals
from their mid-20s to mid-30s. That difference diminished
thereafter, reaching zero for individuals in their mid-40s,
and then rose to positive 10 percentage points among individuals
in their 60s.
We find that changes in headship behavior over time contributed
little to these observed patterns. For those segments of the
population where changes in headship behavior did affect homeownership
rates, lower headship rates reduced homeownership. This occurred
because with lower headship rates some prospective households
do not form, and many of these prospective households would
have been owner-occupants. This pattern is most notable for
individuals in their early and mid-20s for whom reductions
in headship rates between 1970 and 2000 served to depress
homeownership rates by 3 to 5 percentage points. That effect
accounts for much of the observed decline in homeownership
for this group over the 1970 to 2000 period.
Additional findings indicate that for the year 2000, black
and Hispanic homeownership rates are sensitive to differences
in headship behavior relative to white individuals, although
primarily only for individuals in their 20s, 30s, and 40s.
Among African Americans, headship rates are higher than among
white individuals, and that difference serves to narrow the
observed white-black gap in homeownership rates by roughly
three percentage points. Among Hispanics, headship rates are
lower than among white individuals, and that difference serves
to widen the observed white-Hispanic gap in homeownership
rates by two to three percentage points. Once again, lower
headship rates are associated with lower homeownership rates.
Moreover, controlling for headship behavior, white-black homeownership
gaps are somewhat more severe than previously recognized,
while the reverse is true for white-Hispanic gaps in homeownership.
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