Cars, homes, and the American way of life

Can comparative data about owning cars and homeownership in the United States help us think about how the two together help define a unique American way of life?

The data across countries suggest Americans are world leaders in owning vehicles and not so high on the list of homeownership. Few countries have more vehicles than us but over forty have higher percentages of homeownership. Yet, put these two features of life together – driving and owning a home – and they create something fairly unique in the United States.

To start, it is not just that Americans have a lot of vehicles: daily life and spaces are structured around these vehicles. For most Americans, getting to the places that are required for daily life – work, food, school, recreation – requires a vehicle. This is seen as normal and we have adapted in unique ways to this including developing fast food and big box stores (both could not exist in the same way unless people have their own vehicles, and often large ones at that, to operate). It does not have to be this way and indeed many other industrialized countries are not as dependent on vehicles for these daily activities.

As for homes, the availability of cars plus a desire to have a private single-family homes means that Americans are pretty spread out. This way of life reaches its apex in the American suburbs, which range from denser communities where driving involves shorter distances to places on the metropolitan edges where significant driving is needed for every major activity. This suburban form already existed to some degree before cars with the help of trains and streetcars. But, the availability of cars to the public in the 1920s really helped boost suburbanization as did subsequent decisions by different bodies of governments and others to promote an automobile-based society.

Critics of this way of life are plentiful even as we are nearing one hundred years of this arrangement. For more than a third of the existence of the United States, the goal of many is to own a vehicle and a home. To change this would require significant adjustments in a variety of areas. Imagine an America with smaller car companies (think of everything from the economic ripples to what commercials would replace auto ads on TV) or fewer fast food restaurants or no new sprawling suburban developments. We can see the resiliency of car and home narrative still: even as fewer than two-thirds of Americans own their dwelling (with more recent drops after the fallout of the housing bubble plus rising housing costs in certain places), it is still the goal of majority of residents (including younger Americans) and is said to be worth aspiring to. When the economy picks up, it seems Americans return to purchasing cars and homes.

Either cars or homeownership separately may not be enough to mark a unique American lifestyle. Put them together and they shape an entire society of over 300 million people.

Understanding homeownership in the United States through comparative data

Homeownership, like owning a car, is often viewed as a key feature of American life. Here is some comparative data on homeownership across countries:


Several thoughts:

  1. The United States is nowhere near the top of this list. It is #42.
  2. There are a number of less wealthy countries that have significant higher rates of homeownership than the United States.
  3. And this is even with a federal government that subsidizes homeownership and a strong cultural ideology (examples here and here) promoting homeownership in the United States.
  4. This is a reminder that fewer than two-thirds of Americans own their dwelling. Even if it may be a goal of many Americans, not everyone has the resources or opportunities to reach that goal. And the differences in access to homeownership across groups can be stark.
  5. Comparing rates of homeownership may not tell the whole story of what kinds of homes are owned or the size of these homes. Famously, the United States has the largest new homes in the world. So perhaps Americans do not just want to own a home; they want a certain kind of home – a sizable single-family home in the suburbs –  that meets their standards.

Single person household, harder to buy a home

One side effect of the rise of single-person households in the United States may be that it takes many people longer to purchase a home:

Assuming buyers saved 10 percent of their income every year, it would take a single buyer 11 years to sock away enough for a 20 percent down payment on a typical U.S. home, versus less than five for couples. To crunch the numbers, Zillow used income data from the Census Bureau’s 2016 American Community Survey and Zillow’s own 2016 home value data; the 20 percent down payment was calculated based on the most expensive home a household could afford.

The analysis reveals that a single homebuyer in Chicago has to save 10 years for a down payment compared with four years for a couple…

Those numbers alone shape a dismal view of homeownership, but couple them with this statistic, and for women, it gets bleaker: Single men are able to afford a larger share of U.S. homes than single women — 52 percent vs. 39 percent…

Despite inventory challenges, it’s important to note that single buyers aren’t necessarily looking at the same homes that couples might be eyeing. Couples may want the yard and be willing to look for residences in the suburbs, while singles may not be willing to lose the amenities that city living offers. And Dantzler, the broker, adds that there are still starter homes out there for single buyers. Just keep in mind that “starter home means different things for different people,” she said. Also, singles exploring homeownership may want to look into low-down-payment home loans, such as the Federal Housing Administration loan that allows for a 3.5 percent down payment.

The single-person household may be popular because one gains autonomy but this may come with a cost: a financial cost. A couple can pool resources and accumulate wealth more quickly. Could the recent drop in homeownership in the United States be tied in part to more people choosing the single life and not having as many resources for a home?

Of course, perhaps the dream is really to be a single-person household with a high income or lots of wealth so one does not need roommates

Home builders pull support of tax cuts over mortgage interest deduction

A group that may be viewed as generally in favor of fewer taxes – the National Association of Home Builders – is not happy that the mortgage interest deduction could disappear in the Trump tax cuts:

That’s because one day before, House Ways and Means Committee Chairman Kevin Brady (R-Tex.) informed NAHB that he would not be including a homeownership tax credit as part of the new tax legislation, which will be released on Wednesday.

NAHB’s chief executive, Jerry Howard, had spent months working on this new tax provision with Brady’s aides, but House leaders wouldn’t allow its inclusion, Howard was told. The next day, Howard and other NAHB officials gathered on a conference call and debated what to do. They agreed unanimously — kill the bill…

The home builders are seen as among the most influential Washington corporate forces, not only because they have members everywhere but are often big fundraisers for politicians and have a close connection to the economy, development, hiring and economic growth.

They are incensed about proposed changes to tax law that, they believe, would eliminate the need for almost all Americans to itemize their tax deductions, an adjustment they think would nullify the need for middle-class Americans to deduct their mortgage interest from their taxes. They are also incensed that the bill would strip away the ability of Americans to deduct their state and local property taxes from their federal taxable income. Both these changes, NAHB argues, would raise the cost of buying and owning a home.

This part of the tax code has been debated in recent years (ranging from fiscal cliff issues to 2010 post-housing bubble discussions). And, more broadly, the United States is the only developed country that subsidizes mortgages in the ways that we do.

It is not a surprise that certain interest groups would oppose changes to the tax code that they perceive could affect their business. At the same time, any perceived effect on housing – not only a major part of the economy but also symbolically important as a marker of the middle-class lifestyle – is going to draw a lot of attention. And this area also involves the interests of fairly wealthy Americans:

But this national wealth-creation policy has several negative side effects. Since tax benefits are most useful for people with taxable income, U.S. wealth-creation policy is predominantly for people who already have wealth. These high-income households don’t consider their tax benefits to be a form of government policy at all. For example, 60 percent of people who claim the MID say they have never used any government program, ever. As a result, rich households can be skeptical of public-housing policies while benefiting from a $71 billion annual tax benefit which is, functionally, a public-housing policy for the rich. As Desmond writes, “a 15-story public housing tower and a mortgaged suburban home are both government-subsidized, but only one looks (and feels) that way.” In short, an asset-building, wealth-creation, or welfare policy that’s run through the tax code can hurt the overall push for more direct forms of welfare—like simply giving money to the poor…

But more generally, people need money to buy houses. The United States still lags almost every advanced economy in the amount of money transferred from the rich to the poor. One major reason is that the tax code has become a vehicle for incentivizing wealth-creation among households who already have the most wealth, even as the government has soured on policies that spend money directly on the poor. It’s hard to find a better exemplar of this sorry fact than the juxtaposition of America’s affordable housing crisis and the untouchable sanctity of the mortgage-interest deduction.

In other words, the interests of the NAHB are not necessarily with the Americans who most need housing but with those who can purchase more expensive new homes. Thus, the mortgage interest deduction is just another piece of evidence regarding a bifurcated American housing market.

Millennials seek suburban homes and SUVs

Recent data shows several consumption patterns among Millennials:

Generationally speaking, the stereotype of millennials as urbanites falls flat when it comes to homeownership. The Zillow 2016 Consumer Housing Trends Report found that 47 percent of millennial homeowners live in the suburbs, with 33 percent settling in an urban setting and 20 percent opting for a rural area.

Millennial homebuyers do wait longer to buy a first home than did previous generations. But they are skipping the traditional “starter home” and buying larger homes that were previously considered the norm for “move up” buyers…

Erich Merkle, an economist with Ford, says that as millennials cross the threshold into family life, they’re buying large SUVs.

“We expect them to carry on as they age with three-row SUVs and likely go larger simply because they need the space to accommodate children that are now teenagers or preteenagers,” he said.

That combination so emblematic of 2000s consumption – the suburban big home (a McMansion?) and SUV – may be back. On one hand, perhaps this is what millennials are used to or they think they should aspire to. On the other side, consuming these objects can draw criticism. Did Americans learn anything (housing bubble, reliance on cheap oil)? Do they understand the consequences of these purchases (a commitment to sprawl and consuming more than they need)? How could they make such uncool choices (compared to dwellings in hot urban neighborhoods or acquiring cooler vehicles)?

Perhaps this suburban driving culture will continue for a long time…

It is hard to find the “perfect home”

A list of homebuying myths ends with this one:

Myth #6: You bought “the perfect home”

According to a survey by Nerdwallet, 49% of homebuyers had regrets about their home-buying process.

“There are regrets that you can live with and there are regrets that you really want to avoid,” Manni says. “It’s completely normal to regret not having enough space, but you don’t want to regret things like your mortgage or interest rate.”

Manni encourages homebuyers to do their research on home location and take the time to know your mortgage options to avoid feeling stuck down the line.

“Your dream home is not going to be ready and waiting for you — you’re going to have to look,” Manni says.

Regrets can be big or small and making such a large commitment – financially as well as in many other areas – can amplify such concerns. At the same time, what leads people to expect a perfect home in the first place?

A better way to approach this may be to uncover at which point homeowners turn from a twinge of regret to something that pushes them toward a new place to live. What is the tipping point?

Higher home values may be good for many yet reduce the number of new homeowners

Rising home values are often seen as a good thing as homeowners dream of seeing a strong return on their housing investment. Yet, these higher values may just discourage renters from buying a home:

Renters are avoiding buying a home mainly because house prices are soaring. Just 52 percent of renters surveyed in a National Association of Realtors quarterly report said they feel now is a good time to buy — that is down from 62 percent of those surveyed one year ago…

More owners, 71 percent, think selling is a good idea today, up dramatically from 61 percent a year ago. There is so little supply on the market that homes are selling at the fastest pace on record. Great, if you’re a seller, but it begs the question: Why are so few homeowners listing their homes?

“They’re either content where they are, holding off until they build more equity, or hesitant seeing as it will be difficult to find an affordable home to buy,” said Yun. “As a result, inventory conditions have worsened and are restricting sales from breaking out, while contributing to price appreciation that remains far above income growth.”

Affordability is the culprit for both current renters and homeowners. Less than half of all respondents said homes are affordable for buyers. Of course, there are regional differences, with more saying homes are affordable in the Midwest and less saying so in the West.

The housing market often swings back and forth between buyers and sellers. Yet, we have several longer-term problems at play here:

(1) New homeowners having difficulty entering the market (coming off a burst housing bubble with fewer financial resources, millennials with other financial commitments, etc.).

(2) Perhaps shifts in how many younger Americans want to buy the same kinds of homes that are available (though some of this may be overblown).

(3) Housing prices for starter homes or entry-level properties that are too high in several high-demand metropolitan areas (Bay Area, New York City, southern California).

(4) Available credit and homes for those with more financial resources but fewer options for those with less.

In other words, the normal swing of the pendulum between buyers and sellers might not be enough to put the housing market back to rights.