Home Ownership and Real House Prices: Sources of Change, 1965-85

Two phenomena characterized the housing market in the 1970s: a somewhat-disguised surge toward home ownership and a well-publicized sharp increase in the real price of housing. These movements were partially reversed in the first half of the 1980s. In the "standard view", the 1970s changes are attributed to an interaction of the tax system and rising inflation. Given the disinflation of the 1980s, this explanation also seems consistent with the reversals in ownership and real prices. Recent work challenges the standard view. Inflation is said to disfavor home ownership, and real house prices are said to be determined largely by supply (cost), not demand, factors. This paper considers the data on home ownership and real house prices and evaluates the standard view vis-a-vis its challengers. Data from the 1980s suggest that other factors (probably rising income for ownership and negative construction productivity growth for real prices) were responsible for at least half of the 1970s increase in ownership and real price.