A History of the Rise of Homeownership in the United States

A History of the Rise of Homeownership in the United States

Innovations in housing financing, broad-based prosperity in the American middle class, and surging construction of new homes following WWII enabled an increase in the homeownership rate from 43.6 percent in 1940 to 61.9 percent in 1960. Photo credit: John Reps Papers, #15-2-1101. Division of Rare and Manuscript Collections, Cornell University Library.

Owner occupancy is the most common form of housing tenure in the United States. In the final fiscal quarter of 2024, the homeownership rate — the share of occupied housing units that are owner occupied — stood at nearly 66 percent. This article traces the history of how homeownership became the most common form of housing tenure, a key facet of American life, and an essential component of HUD's mission.

Tenure and Residency Before the Great Depression

At the end of the Revolutionary War, the United States was largely agrarian. Only five cities in 1790 had populations greater than 10,000: New York, Philadelphia, Baltimore, Boston, and Charleston. Fueled by immigration, technological advances, and new infrastructure that facilitated internal mobility, American cities expanded and grew exponentially during the 19th century. Many rural residents also moved to cities seeking economic opportunity in new industries and factories. From 1830 to 1840, the number of urban residents grew by 64 percent, rising to a 92 percent growth rate in the following decade. The rapid pace of urban growth persisted and, in some places, even accelerated into the 20th century. This transformation spurred the expansion of multifamily housing in many U.S. cities, where most families rented housing. Former mansions and single-family homes were subdivided and leased to the new residents. Tenement housing emerged for urban workers. Cellars and rear houses built behind rowhouses sheltered the lowest-income segments of the growing number of urban households.

As households from both the nation's rural periphery and abroad flocked to U.S. cities, innovation and new infrastructure opened new suburban locations for settlement. One example of this phenomenon is Brooklyn, New York, which experienced rapid growth after 1814, when regular steam ferry service connected the borough to Manhattan. Other examples include the settlement of Westchester County in New York and communities along Pennsylvania's Main Line, which developed because of the growth of railroad lines. In such newer towns and cities, where much of the land was still undeveloped, the development of communities consisting of individually owned, single-family homes was a feasible goal.

By the 1920s, federal policymakers began to orient their efforts toward the goal of increasing homeownership; to assist localities, the U.S. Department of Commerce published primers on topics such as zoning and building codes. These early documents were intended to impose order on municipal development with a focus on preserving the property rights and health of single-family households. Zoning, for example, was presented as a means of preserving property values by ensuring that no industrial development would occur near residential neighborhoods. Secretary of Commerce (and later U.S. president) Herbert Hoover confirmed the federal government's interest in homeownership in a 1923 handbook for prospective homebuyers: "Maintaining a high percentage of individual homeowners is one of the searching tests that now challenge the people of the United States."

Despite the rising population and increased development in both urban and suburban areas, U.S. homeownership rates remained mostly static from the late 19th century until after the Great Depression. An analysis of historical homeownership rates notes that, from 1890 to 1930, the nation's homeownership rate did not significantly deviate from a baseline rate of 46.5 percent. Although the U.S. gross domestic product (GDP) increased and the economy grew in the decades leading up to the Great Depression, most households did not experience wealth increases significant enough to allow them to transition from renting to homeownership. In addition, the existing housing finance system was not yet suited to accommodate a large-scale transition of households to owner occupancy status. Home loans were issued by an uncoordinated group of savings banks, building and loan associations, and cooperatives. Large banking institutions focused on commercial activities, and the federal government played nearly no role in mortgage lending. As a result, the typical mortgage at that time was expensive and had very challenging terms: a maximum loan-to-value ratio of only 50 percent (versus 80 percent or more today), a 5 to 10 year maturity (versus today's 30-year maturity), and little or no amortization; borrowers were thus exposed to the real risk of losing their homes if they could not pay off their mortgage or refinance at maturity (versus today's full self-amortization). These terms made homeownership unsustainable and inaccessible for broad segments of the population. 

The Great Depression and World War II 

On October 25, 1929, the U.S. stock market crashed, and the global economy entered depression. By 1933, nearly one in four Americans was unemployed, industrial production had decreased by nearly half, and more than one in three banks had failed. The United States sought to arrest the collapse of housing finance institutions, spur employment through homebuilding, and assist homeowners facing foreclosure. To accomplish these goals, the United States passed the Federal Home Loan Bank Act of 1932, which created the Federal Home Loan Bank Board and 12 regional banks to provide funding and liquidity support to housing finance institutions. One year later, the Home Owners' Loan Act created the Home Owners' Loan Corporation (HOLC), which was intended to facilitate the refinancing of mortgages and curb foreclosures. HOLC introduced long-term, fixed-rate mortgages that self-amortized over 20 years (later expanded to 30 years). In 1934, the National Housing Act established the Federal Housing Administration (FHA), which insured these restructured home loans and further expanded the use of fixed-rate, long-term mortgages. HOLC stopped issuing mortgages in 1936, and 2 years later, the Federal National Mortgage Association (Fannie Mae) was launched to foster a secondary market for FHA mortgages. By the beginning of World War II, these crisis response measures had created both a standard mortgage product and financial system that could support mass homeownership. 

World War II increased factory production in the United States substantially; during the war years, the nation's unemployment rate fell from 14.6 percent to less than 2 percent as war-related production grew from just 2 percent of the gross national product in 1941 to 40 percent in 1943. Hoping to avoid a postwar return to mass unemployment as war-related production slowed and government spending declined, Congress passed the Servicemen's Readjustment Act of 1944, commonly known as the G.I. Bill. This legislation authorized low-interest loans to returning service members to help them start businesses or farms or pursue secondary education, and it also gave the Veterans Administration the authority to underwrite mortgages. The macro-level impact of the G.I. Bill was the expansion of the American middle class and decreased economic inequality, granting millions of households access to homeownership. These changes occurred in a context of postwar prosperity and economic growth; the average family income (adjusted for inflation) doubled during roughly the same period, growing as much in the 10 years after the war as it had in the previous 50 years combined.

These changes to financial products and systems combined with Americans' postwar prosperity resulted in a fundamental transformation in American housing tenancy, although the shifts in housing tenure differed across population groups. Whereas prosperity and GDP growth in the 1920s had corresponded only with an increase of 2 to 3 percentage points in the homeownership rate, the homeownership rate increased nearly 20 percentage points between 1940 and 1960, from 43.6 to 61.9 percent. New construction during this period skyrocketed, and the demand for homeownership resulted in a 55 percent increase in the number of U.S. homeowners. The U.S. Census Bureau in 1950 noted that more than 3 million renter units had been converted to owner-occupied units in the previous 10 years alone. Most of the new homes built or converted were single-family detached structures. 

The Past Half Century (1970 to Today)

By 1970, user-friendly mortgage products, a stable financial system, and decades of postwar prosperity had caused the homeownership rate to increase to nearly 65 percent. For four straight decades — from 1940 until 1980 — the homeownership rate increased with every census. During this period, growth rates for owner-occupied units greatly outpaced the development of rental units throughout the United States. In 1990, the homeownership rate decreased slightly to 64.2 percent.

During the 1970s and 1980s, persistent inflation caused mortgage rates to rise, which priced some families out of homeownership and caused the homeownership rate to decrease slightly in the 1980s. However, the homeownership rate rose again in the 1990s and early 2000s, from 63.8 percent in 1989 to a record high of 69.2 percent in 2004. This increase was in part the result of unsustainable lending practices, and in 2008, the housing market collapsed, causing a wave of foreclosures that triggered a decrease in the homeownership rate. In the final quarter of fiscal year 2024, the homeownership rate stood at 65.7 percent — relatively unchanged since both the previous quarter and year, and the same rate as it was in 1979.

Before the end of World War II, nearly all homes purchased in the United States were detached, single-family structures. Although single-family homes remain by far the most common form of tenure, advances in technology and financing have opened new tenure opportunities for American households. One such tenure type is ownership of a unit in a multifamily building, commonly referred to as a condominium or condo. The nation's first modern condos were built in Puerto Rico in 1958, and the ownership model quickly spread to the contiguous United States in the following years. Section 234 of the Housing Act of 1961 allowed the FHA to insure mortgages on condos, and by 1969, every U.S. state had passed laws allowing condo ownership. Condos increased in popularity as the parents of baby boomers aged and retired in the 1970s and 1980s; in 1982, roughly 45 percent of all multifamily construction starts were for condominium ownership. Since the 2008 housing crisis, however, condominium construction rates have declined because of financing constraints and regulations, both of which limit the willingness of sponsors and builders to build owner-occupied units in multifamily structures. Condominium construction accounted for only 5.4 percent of all multifamily starts and only 2.7 percent of all single-family and multifamily home construction for the first three quarters of 2021.

In addition to condos, the postwar era also saw the emergence of manufactured housing, sometimes referred to as mobile homes. Since the advent of mass automobile ownership in the 1920s and 1930s, Americans have attached trailers to cars, most often for recreational purposes. With the pressing need to house workers during and after World War II, however, the U.S. government began considering the feasibility of constructing smaller housing units on a mobile chassis to develop affordable and safe housing. The number of mobile homes delivered increased from less than 100,000 per year in 1960 to nearly 700,000 annually by 1973. Built in different locations to different local codes, these homes were prone to safety issues. To improve manufactured housing's safety and address disparities in building standards, Congress passed the National Mobile Home Construction and Safety Standards Act of 1974 (42 U.S.C. § 5401–26) regulating the construction of manufactured homes. HUD implemented these standards as the Manufactured Home Construction and Safety Standards, or HUD Code, in 1976. In 2023, manufactured homes represented 11 percent of all new housing starts nationally, with an aggregate stock of more than 8 million units.

Conclusion

Following record-high homeownership rates before the 2008 housing and financial crisis, homeownership rates have remained relatively static at the current rate of 65 percent. Condos, manufactured homes, and other novel forms of tenure may present prospective homebuyers and policymakers with the means to overcome barriers to homeownership and allow more households to own a home.