Drop in area homeownership not all bad news

If owning a home is synonymous with "making it" in America, then the findings of a Pew Charitable Trusts study that between 2000 and 2012 homeownership rates in Philadelphia plummeted 7.1 percent should be very disturbing.

Does this mean the city and its housing market are falling apart? No! The drop may actually be saying some good things about the city's future.

When it comes to understanding economic data, the biggest mistake is to take the headline number at face value. It is much more important to understand why the results came about. Indeed, the huge ownership decline tells us very little about the underlying trends in the housing market.

Yes, the data were troubling. Of the 30 largest U.S. cities, Philadelphia's decline was exceeded only by Phoenix, which was "ground zero" for the housing-market collapse. Worse, the largest drop was in married couples with children, the traditional homeowner segment.

Nevertheless, other details in the report, and the changing city demographics, argue that the housing market actually has a bright future. First, the core of the city is already being revitalized. From the Delaware to the Schuylkill, homeownership increased, and prices are consistently rising in Center City.

The downtown Philadelphia housing market is being driven by positive, long-term trends. Baby boomers are looking for "high-density, amenity-rich" locations, and the city, with its large numbers of restaurants, and cultural and entertainment facilities, fits that bill perfectly. And as more households with income locate downtown, additional businesses can be supported. Retailing and service firms are already expanding.

A second trend is the growing number of college graduates staying in the region. Previously, Philadelphia had not been able to retain this key group. The increasing younger population is adding to the city's "buzz," and in combination with the influx of boomers, it has changed the face of downtown Philadelphia.

While the influx of boomers and younger professionals is great for the economy going forward, it has real implications for homeownership. Younger professionals, not surprisingly, have a significantly lower homeownership rate than the rest of society. In the first quarter of 2014, the national homeownership rate was 64.8 percent. For those 25 to 29 years old, it was just 21.5 percent, and somewhat higher - at 33.3 percent - for those in the 30-to-34 age group.

As the city's younger-adult population increases, mathematics dictates the homeownership rate will decline - but for good reasons, not bad.

Younger people tend to rent rather than buy because of financial constraints. Moreover, millennials, most often described as anyone born after 1980, have spent their lives in houses, so living in a home may not be that much of a dream. A house with a yard in a suburban community is nothing special to them, and therefore not anything special to strive for, at least early in their careers.

If millennials don't view "buying their own home" as a top priority, they may put off owning until later in their lives than previous generations, or even decide not to own. That would create growing demand for apartments while lessening the demand for single-family housing. Cities will benefit, but who will buy the suburban McMansions boomers are trying to sell?

Similarly, as boomers leave the suburbs, ownership may be less of a priority. They have "lived the dream" already and want to simplify their lives. This would mean renting rather than owning or looking for co-ops and condos, not single-family homes. To the extent that boomers wind up renting, the ownership rate declines.

The changing makeup of Philadelphia is not limited to Center City. Many millennials still want to live "the dream." They desire reasonably priced homes with easy access to Center City. Areas such as East Falls, Southwick, Torresdale, and Chestnut Hill saw increases in homeownership.

While the demographic changes may improve the city's economy, the study is finding that families with children posted the largest decline in homeownership. That is a warning flag.

Undoubtedly, the city's school system is reducing the willingness of families to purchase a home in Philadelphia. Retaining that group is absolutely essential if the city's economy is to grow strongly.

The decline in homeownership is a complex issue that one number cannot explain. Though changing demographics are bringing new vitality and optimism to Philadelphia, families are being driven out.

For Philadelphia to become a world-class location, it has to attract not only younger and older households, but improve its school system so it can also retain families.