Commonly-used measures of the homeownership rate generally describe aggregate trends consistent with the image of young households that start out as renters, become homeowners, and continue to own a home for many years.
But is this image too simplistic? How many adults make tenure changes other than the typical rent-to-own progression?
My analysis of longitudinal data from the Panel Study of Income Dynamics (PSID) suggests that alternate paths are common, with one in four adults aged 50 or older in 2015 making an own-to-rent transition between 1995 and 2015. I also found that the share of adults following these various trajectories differs substantially by race, which is not surprising given notable and growing differences in homeownership rates between whites and blacks.
Illustratively, the national homeownership rate in 2017 was 64 percent, according to the Census Bureau’s Housing Vacancy Survey (HVS). Additionally, we know that the homeownership rate increases with age and, according to the HVS, peaks at close to 80 percent among households age 65 and older. Such figures seem to indicate that once people move from renting to owning they rarely become renters again.
A different narrative, however, emerges from the PSID, a nationally representative study that every two years asks a fixed group of people questions on a variety of topics including their employment status, income, and housing tenure. I used data from the PSID to follow a sample of adults who were at least 50 years old in 2015 over 20 years, from 1995 to 2015. (This means they were at least 30 when I started observing them in 1995 and had likely established their own household by that time).
In this sample, 77 percent of adults over age 50 in 2015 lived in an “owned home” (i.e., they either owned the home themselves or lived with someone else who owned the unit). So, what share of the 23 percent of adults over age 50 who were not homeowners in 2015 were always renters between 1995 and 2015?
The answer is surprisingly few. As Table 1 shows, less than 4 percent of adults age 50 or over in 2015 were renters for the entire period between 1995 and 2015. If so few adults were consistently renters over a period of 20 years, then nearly all of the adults in the sample spent at least one two-year period living in an owned home.
Table 1. Trajectories of Housing Tenure
Overall, approximately 62 percent of the sample lived in an owned home every time they were observed by the PSID from 1995 to 2015. Another 9 percent rented initially before transitioning to and sustaining homeownership.
These figures mean that about 25 percent of the adults age 50 or older in 2015 transitioned from owning to renting at some point in the previous 20 years. Of these, 6 percent were owners who became renters and then became owners again. Another 4 percent went from owning to renting and remained as renters. The remaining 15 percent followed a host of other trajectories, all of which involved being a renter at some point in time.
Table 1 also breaks down the most common trajectories in ten-year periods before and during/after the foreclosure crisis, from 1995 to 2005 and 2005 to 2015. In both periods the statistics represent tenure sequences among adults who were at least 50 years old in the final year of the period (2005 or 2015). The share of adults who always owned was slightly lower from 2005 to 2015 than it was from 1995 to 2005, and the share of adults who always rented was slightly higher. In general, however, the patterns during the ten-year periods show more stability than in the 20-year period, which is to be expected since change is more likely over a longer period of time. These statistics also demonstrate that the foreclosure crisis was not responsible for the overall volatility in tenure during the 20 years covered by the analysis.
Given the difference in homeownership rates by race (72 percent among whites, 43 percent among blacks), the share of adults following these various trajectories also differs by race. As Figure 1 shows, among whites, the pattern follows the full sample pretty closely, with approximately 67 percent owning the entire 20 years, 8 percent renting and transitioning to owning, and 2 percent renting the entire time. Another 23 percent experienced a more complicated trajectory: 6 percent owned, then rented, and then owned again; 4 percent owned and then became renters; and 13 percent had some other trajectory that involved renting at some point between 1995 and 2015.
The pattern among blacks, however, was different. While the most common trajectory was still owning the entire time, it was the experience of only 36 percent of blacks. While renting the entire time was the fifth most common sequence among whites, at 13 percent, it was the second most common sequence among blacks. Moreover, the proportion of blacks who rented from 1995 to 2015 was over six times higher than the proportion of whites who consistently rented in that time. The remaining 51 percent of blacks experienced more than one tenure: 11 percent went from renting to owning; 6 percent went from owning to renting; 5 percent went from owning to renting to owning again; and the remaining 29 percent followed various other trajectories.
Taken together, the aggregate and race-specific statistics show that any assumption of a one-way path of renting to homeownership provides an incomplete picture of housing tenure trajectories. Policymakers and researchers focused on housing and homeownership should be cognizant of the fact that there is much more dynamism in tenure status than is frequently assumed.