Declining homeownership

Homeownership levels in most developed countries have fallen over the past decade. In the UK, the rate of homeownership reached a peak of 73% in 2008; by 2017, this figure had fallen to 63%. The same phenomenon has been witnessed in similar western nations as in the US, it has fallen by 10% since 2008. Some economists tout the sub-prime mortgage crisis and the subsequent Great Recession as the cause of this fall in homeownership. However, homeownership has also fallen in nations that were relatively unaffected by the Financial Crisis. In Australia, one of the only western nations that experienced GDP growth in 2008, homeownership has fallen from 70% in 2004 to 66% in 2018. Cultural shifts have a part to play in declining homeownership, as does the reckless expansionary monetary policy measures that have pursued by Central Banks globally for the past decade.

Cultural factors

One of the main factors behind declining homeownership is the cultural shift amongst the younger generations. Renting items has become a popular phenomenon amongst younger folk, whether that be music or clothing. This has extended to housing too, with private renting becoming more common amongst current 25-34 year olds than those in previous generations. At the same time, the decline of marriage rates has also contributed to declining homeownership. In the UK, the number of marriages has fallen from just under 300,000 annually in 2005 to 240,000 in 2017. This has led to less pressure and emphasis for these generations to purchase their first homes to start a family, resulting in falling homeownership.

Monetary policy

The excessive use of quantitative easing by Central Banks globally has led to skyrocketing house prices, making it impossible for individuals to purchase a home. Quantitative easing involves the central bank purchasing bonds, thereby decreasing real interest rates by increasing the amount of money in circulation. However, these funds are credited to the accounts of institutional investment groups and other wealthy groups, leading to further investment in the housing market. As this increased wealth is used to purchase homes, this drives up the price of the housing market through demand-pull inflation. Since the introduction of QE in 2008, the average home has risen in price from £150k to £220k in 2018. As house price inflation outpaces that of wage growth, millennials become increasingly unable to purchase their first home, resulting in lower homeownership.

The ultra-low bank rates set by Central Banks globally have further pushed property prices higher, driving down homeownership in the process. This is because of the ultra-low bond yields caused by the low bank rates. As a result, institutional investment groups have been forced into investing in alternative asset classes to secure higher returns. This has led to real estate portfolio allocations increasing, from just over 4% in 2008 to 7% by 2019 – a 75% increase. This higher demand for homes has further driven up prices, as institutional investors put more money into real estate, causing falling homeownership as homes become less affordable.

Ultimately, the recent decline in homeownership can be attributed to the cultural changes of the younger generation and the house-price inflation that is largely due to the expansionary policies pursued by Central Banks globally. Whilst it appears that Central Banks are tapering their use of QE because of fears over rising inflation, it is yet to be seen whether this will result in lower house prices. With this said, if house prices continue to reach astronomical levels then it is unlikely that the current state of housing will change.