Home Ownership not an Economic Catalyst?
The Kansas City metro has long been considered a place where the American Dream of home ownership can be easily achieved. Our median home value stands at $159,200, which is well below the national median of $179,900.
Lower housing costs lead to more home ownership. In the Kansas City metro, 68 percent of all occupied housing units are owner occupied. Nationwide this figure is slightly lower, at 65 percent. We often note that we have higher home ownership rates than metros like Denver (65 percent) and San Jose (57 percent). But, is this really a good thing? According to urban economist Richard Florida, affordable housing does not positively impact economic growth.
In his article, Florida plots homeownership rates against several economic factors, such as economic output per capita, average wages and share of college graduates. Home ownership is not positively correlated with any of the measures he looked at.
Here are scatterplot charts for economic output per capita and average wage vs. home ownership share. The charts in the article do include the Kansas City metro, but it is not labeled. In both instances Kansas City would appear in the lower right quadrant.
Florida’s findings are interesting because, at first glance, they seem counterintuitive. We have long believed that homeownership is a positive and that metros with more affordable housing are better off.
However, when we look at it another way, the correlation between lower home ownership rates and greater economic growth makes sense.
Home ownership depends heavily on the cost of housing, and the cost of housing is a reflection of the overall demand for that housing. Metros with high housing demand will see higher home values. If more and more people want to live in a city that offers greater economic opportunities, housing prices will go up and home ownership rates will fall as housing becomes less affordable. This is clearly the case in the San Jose metro. San Jose appears in the upper-left quadrant of both charts above (higher GDP per capita and average wage, but lower home ownership rates).
Economic opportunity is the real driver here. When thinking about places to live, workers (particularly highly skilled workers) are going to look first and foremost at places with the most economic opportunities. Affordable housing is a plus, but it may not carry enough weight to overcome the benefits (real or perceived) of locating in a metro with greater economic opportunity.
What’s the lesson for Kansas City in this? If we think affordable housing alone is a strong enough lure to attract the high-skilled workers to our economy into the future, we might be in for a rude awakening.