Kicking. Squealing.
Tyler Cowen’s asks in a headline: “Is a high home ownership rate a sign of a successful country?”
He posts statistics from a magazine which he’s unable to link to which shows that the European countries with the highest home owner occupancy rates seem to be the poorest. Romania, Lithuania, Croatia, and Slovakia have ownership rates greater than 90% while Germany, Switzerland, and Austria have the lowest rates – all under 60%.
For comparison, we have data on owner-occupancy rates for the various U.S. states. The U.S.’s overall ratio is about 67%. The states with the highest property values – New York, California, Hawaii, and Nevada have the lowest owner-occupany rates. Washington D.C. has the lowest overall ratio which might be mixed in with a completely different property issue.
Some have suggested in MR’s comments that Eastern European countries have high ownership rates because in the aftermath of Communism the governments sold homes very cheaply. That could be true, but it doesn’t explain why the wealthiest European countries have the lowest home ownership rates. Just thinking visually, dynamic countries with big cities full of apartments and temporary, on-the-go white collar workers would tend to be the richest countries. Landlords would invest in these areas which draw labor because of the commercial opportunities. As with all things economic, it’s not as if there is a “right” owner-occupancy ratio. The Eastern European countries probably have a very low number of domiciles while the wealthier European countries have landlord-investors and a low ratio of rooms to inhabitants. What the cited statistics don’t tell us is what percentage of people in these countries are home owners. The more important question insofar as “owning a stake” provides positive externalities for a nation is how many people a.) own something and b.) own something of value.
Some of the worldly commenters can weigh in.
Ownership — if earned — gives some people an ownership stake with significant positive externalities. Not all. If not earned… Forget it.
And it’s easy to figure out which is which: They just act that way anyhow.
In wealthier European states with lower ownership rates, explanations would include: (1) high taxes on property owners, (2) less financing available for home purchases, (3) relatively low rents due to large supply of rental housing.
I think that a better metric of prosperity (at least for the US) is local median salary divided by the median price of a home all multiplied by the employment rate.
If I were going to move to New York City, California, Hawaii or Nevada I’d rent rather than buy. It is too expensive to buy anything nice in those places. My mortgage payment is comparable to the rents around here, and I can make changes to the house.
These poorer European countries are less urbanized, so there is less of an alternative to home ownership. I’d hazard to guess that the US was still a richer country a few generations ago and that our home ownership rate was higher because we were less urbanized as well. I’m also sure the price of land will be significantly lower in places like the US than it would be in places like Switzerland and Japan. On top of that the housing bubble probably pushed ownership rates down.
Switzerland’s housing bubble has yet to pop, and rent a more attractive option than it should be because the disparity in prices, versus the current post-bubble US where mortgage payments are roughly equivalent to rent when controlling for all other factors, which is what you would expect, but wasn’t the case for about a generation.
Also the data is probably not very accurate. Romania at 97.5% seems implausibly high, even with the farmer/villager culture there. I’m sure it is very high, but I’m willing to bet a lot of people are living with relatives and friends while paying rent or otherwise working for room and board but aren’t being counted in these statistics.
Our elites live in those high rent states. They might like the idea of being able to get out fast if things go bad.
The stats from poorer Eastern European countries like Romania may reflect multiple generations living in one home or block apartment. While there is just one actual owner on the title, the kids/spouses who live wiht them consider themselves “owners” rather than “renters,” thus skewing the ownership figures.
Home ownership should be divided into two categories: Owned, and Mortgaged (Rent-to-Own). Most all of those who “lost their homes”, in the recent bubble, never really owned the place.
Perhaps Robin Hanson’s idea of forager values (as opposed to farmer values) making a return means a more nomadic lifestyle, replete with the ease of ditching a rental situation.
There are a very large number of people who rent instead of own; they do this on purpose. They could choose to own, but don’t.
You imply without stating it that people would choose to own. In fact, home ownership is just one for of investment. Property may have once been a guarantee, but for 50 years, it’s been a bit of a gamble.
It’s often far more economically efficient to rent, and invest money in something else.
Another factor is self-imposed poverty by choice.
Many people choose to live in expensive cities where the remuneration doesn’t compensate for the increased cost of living. They choose to do this because of the ancillary benefits: by living this way, they can enjoy culture, social status, specific jobs fields, or any other benefit.
it may be more prudent to move from Manhattan to Wyoming, especially if there’s a job available, where you could buy a house, … but for many, living in Wyoming isn’t a draw.
The problem is again in thinking that people are economic widgets that always make the most apparently economically rational choice.
From my observations and talking with relatives and friends in Germany, there are a few reasons why many don\’t own a home and it mainly comes down to cost:
1. Taxes, taxes, taxes.
2. Land is much more expensive.
3. The homes are much more expensive because they are built with only the highest quality and most durable materials. Solid masonry (no stick homes with vinyl siding), hot water heat (no forced air), tiled roof (no asphalt shingles).
Here is a bittersweet, almost surreal situation: in high school (mid/late 80s) I had a fling with a girl I’ll call “Jennifer”. One bang at a party, a couple of makeouts after work during our part-time job at a restaurant (yeah, teenagers used to do that). I hadn’t seen her since high school, but she reconnected with me on Facebook, and we’ve had some nice conversations on chat. Well, she is married, three kids, other side of the country… other than her haunting eyes which she still has that I remember from my schoolboy days, she’s an overweight, middle aged woman with short hair. Zero sexual attraction on my part to her now, but a genuine pleasure in catching up with her. She is very intelligent, bubbly, and as it turns out, very rightie.
Here is the surreal thing: her daughter, college-age, is a dead ringer for the Jennifer I remember from high school. The daughter (“Lisa”), is someone I never met, but she will often “like” a comment I make, or otherwise post somethign cute in response to me on Jennifer’s thread.
It’s almost, as though I were talking today, in 2012, with Jennifer of 1987. Same mannerism, same cocquetishness in Lisa.
No doubt, a French movie on a similar theme has been made at some point.
I think that there are several factors:
1) During the communist regime, In Eastern Europe, most people were assigned an apartment (depending on their assigned work place and the family size) and they paid rent to the state for it. Then, in the early ’90, all those apartments were given almost for free to them.
2) Nowadays, in the rural areas the building code isn’t enforced at all. If you own a bit of land, you can just build your own house there, without any papers, without paying a building company. You just gather a group of people who have a little bit of experience, buy the materials, and begin work on your house. Yes, it’s illegal, but nobody seems to care as long as you later begin paying (a very very low) property tax.
3) Because self-employed people pay less tax, a lot of new apartment buildings belong to a single person (instead of beloging to a company). Also this person rents most of the apartments without any contracts. So in the official stats you have one guy who owns 20 empty apartments, while in reality 20 families are paying rent to him.
But the most important of all:.
4) The birthrate collapsed and at the same time the young (from the most daring criminals, to the smartest scientists) moved abroad. For example, Romania’s population decreased by 15% in only 10 years! Unless a big earthquake will come, in another decade there will be a lot of empty apartments.