New York is among the metro areas with the highest wealth inequality in the country, and new analysis from the National Association of Realtors suggests that a combination of rising home values and dropping homeownership rates are a driving factor in that inequality.
“Homeownership plays a pivotal role in the U.S. economy and has historically been one of the primary sources of wealth accumulation for middle class families,” NAR chief economist Lawrence Yun said in a press release. “Unfortunately, due to an underperforming labor market, insufficient housing supply and overly-stringent underwriting standards since the recession, homeownership has plunged to a rate not seen in over two decades. As a result, the country has become more unequal as the number of homeowners has fallen while the number of renters has significantly risen.”
NAR researchers came to that conclusion by comparing homeownership rates, changes in the median price for single-family homes, and the Gini Index (a widely used measure of inequality) spanning the years between 2010 and 2013. They looked at 100 metropolitan areas.
Fully 93% of those areas have seen both declining homeownership rates and improving home values. That has the potential to cause inequality because it puts more wealth in the pockets of a few homeowners, while renters tend to see rent increases and therefore declining wealth.
Home values are a tricky metric, of course, especially since non-market factors can influence them — at least on a small scale (just landscaping a curb, for example, can increase a home’s value by 4.4%, and adding hedges can up it by 3.6%). But overall trends can still be illuminating.
The NAR found that the cities with the lowest rates of homeownership were also the most unequal. Los Angeles and San Diego joined New York in being particularly unequal high-cost areas.
Of course, as the Wall Street Journal has pointed out, the National Association of Realtors represents real estate agents and therefore has a financial interest in encouraging broad homeownership. But it’s worth noting that several academic sources have also floated the idea in recent months that homeownership should be at the center of an understanding of American wealth inequality.