Misplaced fears about homeownership

Who knew Thomas Malthus would make reappearance in the 21^st century? The 18^th century academic is remembered for predicting that a growing population could not possibly sustain itself, resulting in widespread starvation and chaos. Yet this turn of events—the “Malthusian catastrophe”—never came to pass. Instead, societal changes, human ingenuity and innovation created new opportunities for the next generation to not only succeed, but also thrive. None of his predictions came anywhere close to passing. 

This is worth remembering when you hear about the supposed modern-day Malthusian catastrophe: The housing market. Just like the fears over population growth in the 1700s, the fears are grossly misplaced. 

{mosads}Following the financial crisis of the late 2000s, experts have frequently predicted that housing can never reach its pre-crash peak. Instead, it will ostensibly slide lower and lower as the years go by. According to this logic, future generations—especially in minority communities—will never be able to join the ranks of the American homeowner, missing out on a crucial element of the American Dream. 

The Urban Institute provides the best example of this mindset. In its recently released report, the authors argued that “the homeownership rate will continue to decline” in the coming years, falling among every age bracket except those over 75. In its place, the percentage of renters will steadily increase. These trends will be driven by minority groups, especially African-Americans, and it apparently shows no signs of changing. 

At first glance, this logic seems compelling—it takes the current state of the housing market and extrapolates it well into the future. Yet Thomas Malthus did the same thing. The crucial flaw in both analyses is that it assumes we are incapable of finding solutions to the problems that face society. 

It is undeniable that homeownership is falling across the country. Yet, in light of our culture’s emphasis on the importance of homeownership, it is equally undeniable that policymakers and industry leaders will continue to find ways to make it accessible to those who could not otherwise afford it. Although we don’t necessarily know what form it will take, it is all but certain that we will discover innovative new ways to extend the benefits of homeownership to new generations. 

In fact, there are already signs that we’re addressing this issue. The doomsday scenarios typically fail to take into account the growing education levels of most minority communities. For instance, both Hispanic and African-American communities become more educated with every passing year, and more education leads to higher income levels and homeownership. So, while previous generations may not have been able to afford homes, the current and future ones have a much better shot at transitioning to homeownership and all the opportunities that accompany it. 

Higher education levels also help individuals and families move into the neighborhoods and other areas that are more conducive to homeownership. As recent research from Harvard University shows, this migration increases upward mobility for the next generation. 

Other factors could play a role, too. Lenders and policymakers will undoubtedly find new ways to offer loans and modify underwriting standards, so that groups with traditionally lower homeownership rates can achieve the American Dream. Many of these new products and standards have not yet been created—but it’s only a matter of time. Ten years ago, who could possibly have known what an iPhone was, or what a transformational effect it would have on society? The innovation that exists in technology and other industries is just as capable of occurring in the lending market. Such is the nature of human ingenuity. 

Government also has a role to play. Some efforts are already underway. The federal mortgage giant Fannie Mae, for instance, recently announced a new loan program specifically targeted to minority homeowners. It has also modified its qualifying income rules to allow multiple contributors to the mortgage payment process—a common practice for many first-time homebuyers, especially in the Hispanic community. These are only the tip of the iceberg. 

No matter how it happens, one thing is certain: The fears about the future of homeownership are misplaced. Just as Thomas Malthus was wrong about population in the 18^th century, so too are those who worry that homeownership will inevitably wither in the 21^st century. We can solve the modern homeownership crisis—just like we’ve solved so many other problems that have come our way.

Fleming is chief economist at First American Financial Corp. He will be speaking on the topic of homeownership and economic mobility among Hispanic and African-American communities at the Achieving the American Dream Leadership Forum on October 27, 2015 in Washington D.C.