Posted by: Josh Lehner | January 14, 2021

Rising Housing Wealth

Economists are increasing optimistic on the outlook in large part because household incomes are up, and consumer spending has largely followed. But it’s not just current income, we know asset markets are strong as well. Wealth is increasing, which supports additional consumer spending should households want or need it. While stock market wealth is very concentrated among high-income households, real estate wealth is a bit more broadly distributed, and is the key source of wealth for households in the middle and bottom parts of the distribution.

Given home price appreciation and a rising homeownership rate in recent years, the total value of owner-occupied housing is increasing faster than the overall economy as seen in the chart below. For now this excludes rental properties as some of those equity gains go to owners outside of the region, and the rental income from those properties shows up in the current income data.

But looking at the total value of housing overstates the real situation because it does not account for mortgage debt. The next chart tries to adjust for that. These estimates are built off of median mortgage debt and home equity lines of credit information, coupled with median home values. Then adjust those for the share of households who own their home free and clear and the like. While it’s a decent, rough estimate of owner-occupied equity in Oregon, it is also an underestimate of the true number because it is but off medians and not averages (average debt data is not readily available).

Even so, the patterns are very clear. Home equity is much larger today, relative to the size of the economy, then back during the housing bubble. There is a considerable amount of housing wealth that remains largely untapped today. And of course the Bend MSA really stands out on this chart. I was honestly surprised at the sheer size of home equity when I first put this together. I’ll come back to this in the near future, but the relative size of housing wealth in Bend puts it pretty rarefied air when looking across the nearly 400 metro areas around the country.

While the rise in home equity is clearly relevant from a personal finance perspective, what does it mean for the economy more broadly? That’s a little bit harder to say. I’ve spent some time lately re-reading a few research papers. As expected, the main conduit for broader economic implications is through consumer spending.

One of the landmark academic papers from Mian, Rao, and Sufi (2013) finds that the marginal propensity to consume out of housing wealth is 5-7%. That means if your home equity increases $10,000, then you will spend an additional $500-700. More recent research from Moody’s Analytics (no link) estimates that figure is closer to 4% in the years since the housing bubble burst. Even so, with home equity rising by tens of billions of dollars in Oregon last year, that would support additional consumers spending by hundreds of millions, if not a full billion of dollars.

Of course home equity isn’t liquid. One has to do a cash-out refinance, or take out a home equity line of credit or the like to access the wealth and spend it. As Calculated Risk has been tracking over the years, mortgage equity withdrawal has been really tame since the bubble, although it has picked up this year for the first time in a decade. Given the strong home equity position, and record low interest rates, it is possible that we will see more mortgage equity withdrawal moving forward as well, if it is needed.

So what do people do when they withdrawal equity? Recent research out of the Federal Reserve shows that many households spend it on home improvements, furnishings and the like. In other words the most common thing is taking out equity to improve or update the house itself. Other things households do is save a lot of it initially, likely to spend or invest it in the years ahead, or consolidate other forms of debt, with only relatively small amounts spent on other types of things like autos. Generally speaking households don’t treat home equity as an ATM. They seem to generally have a plan, which is great!

Given households incomes are up and the economy is not fully open, what else could households be spending their equity on in the last year? One thing to keep in mind is that we know personal savings and home equity are the major source of funding for small businesses. See the Federal Reserve’s Small Business Credit Survey for more. Even as the economy is doing much better than feared, businesses have struggled. Given the timing here, I think it makes a lot of theoretical sense that some of the recent equity withdrawals are being used to support businesses. Time will tell to what extent that is actually the case.

Finally, another option could be retirees maintaining their general spending or paying for long-term care which can amount to tens of thousands of dollars a year. This was a possibility brought up on Twitter by former Oregon Representative Julie Parrish, with a few others chiming in saying it’s a big, and growing need as the population ages. As our office has discussed before, many retirement-aged households do not have adequate private savings and social security accounts for the bulk of their income. So using home equity as a source of income would make sense when it is needed.

To this point, we know there is a growing number of homeowners who own their homes free and clear. They have lived in them a long time and have paid off the mortgage. This is expected to continue to increase in the years ahead, due to the Baby Boomers retiring. Now, a couple complicating factors here is that the Fed research noted above shows that mortgage equity withdrawal is something that 40-somethings do the most, and 60- and 70-somethings do the least. Additionally, we know downsizing also isn’t really a thing. As such, it is probably reasonable to expect long-time homeowners to largely sit on their equity until the day comes when they either have to move into some sort of assisted living, or their finances dictate a need.

All told, home equity has been increasing considerably in the past decade. Current homeowners are in much better financial positions than they were a decade or two ago. Just how much this equity will support consumer spending and future economic growth is still to be determined. Even without a big increase in mortgage equity withdrawal, it could add a couple tenths of a percent to annual GDP growth. Of course not all of this is good news. The system we have in place where homeownership is the best (only?) path to wealth building for most households isn’t great. Housing cannot be both affordable and a good investment, outside of the forced savings part and paying down debt. One reason equity has risen is due to the undersupply or relative lack of new construction driving prices higher.

Stay tuned, I have a lot more along these lines coming in the near future including an update on construction relative to population growth, comparing housing wealth across metro areas, and digging further into the latest Survey of Consumer Finance to look at the stock of unrealized capital gains.


  1. Do you also follow those buying homes with cash as opposed to a mortgage? I hear lots of folks moving here are buying up homes with cash. Wonder what that means for general economic impacts.

    • I’m not sure about recent trends. Cash buyers have been a sizable share of the market in the past decade, but I don’t know if that accelerated or not in 2020. Will keep my eyes open for the data. I know the Central Oregon Realtors Association tracks that in their quarterly reports (not updated yet) but the standard RMLS data in Portland doesn’t report the financing/types.

  2. Welcome to the New Year Josh!

    I’m going to continue to press you to look at “best evidence” regarding the “housing affordability” issue. As a reminder:

    “Housing Affordability” can be divided into three household situations:
    a) Individuals and families that simply cannot afford any available housing and are either “unhoused” or staying temporarily with relatives, a shelter, etc.
    b) Households that are “housing-cost-burdened” whereby after they pay rent (almost all of these are renters), they don’t have adequate funds to pay for other human necessities (health care, food, etc.)
    c) Households that can’t afford any of the available housing that they deem “desirable.”

    The last category (c) is an “expectation” and “market” issue, not a “state” problem. While it’s fine for legislators to consider ways to improve the economy in various ways, these households do not merit “takings” from other households to subsidize the households’ “buying up.”

    The first two categories should be what you provide the “best evidence” for legislators to consider.

    The very first step is to move from “percent of income” metric to “residual income” as the metric to understand the scope and nature of “housing-cost-burden” in Oregon and local communities.

    I think you understand the many structure flaws in “percent of income.” In fact, you mention one above — older retirees whose houses are fully paid; off; who have limited income; but who have adequate residual income and support (e.g., the major expense reduction by being on Medicare).

    In addition student populations can create a dramatic skew in the picture presented by “percent of income.”

    Once you can produce relevant statistics, then legislators and citizens can look at what should be done.

    Instead, we have “woke” YIMBY zealots pushing “middle housing” and “eliminating single-family zoning” nonsense, instead of looking at how to lower the development costs, and provide funding for, subsidized apartments sited where there’s good public transit.

    • Hi Paul,

      I agree residual income is the better way to look at affordability. A few years back we showed residual income approximations for the typical household in each zip code in Oregon. One issue here is we lack good data on individual household spending patterns. That earlier work just a blunt estimate of non-housing expenditures for U.S. households in the second quartile or something like that. Considered that a not terrible starting point. Do you have recommendations for how to improve that work? Something similar but I was thinking running it through the actual microdata so we can look household by household instead of median households based on the published tables. Adjusting for household size is probably important as well, but I wasn’t sure how to scale the numbers? Something like the self-sufficiency standard does that household adjustment, but the income needed for those calculations is higher than what most people survive on. Not that they’re wrong, just that many people manage to get by without hitting those benchmarks.

      And on development, removing exclusionary single family zoning should provide a boost to housing supply over the long run, and help with affordability. It’s not a silver bullet and it’s not instantaneous. I also believe development costs and SDCs and likely part of the next major housing discussion that the Legislature will have. We seem to have shifted away from property taxes themselves as funding for city infrastructure and instead replaced it more with SDCs and the idea that new growth must pay for itself.


      • Re: Assessing the true measure of “housing-cost burdened” households.

        Here’s what seems to be a good starting point. The paper provides their methodology.

        Measuring Housing Affordability: Assessing the 30 Percent of Income Standard
        by Christopher Herbert, Alexander Hermann, Daniel McCue; Joint Center for Housing Studies of Harvard University

        This Harvard study provides detailed data and analysis to confirm that the commonly used criterion – a household is “housing-cost burdened” when they spend more than 30% of their household income on housing – isn’t an accurate metric. Obviously, a household with a million dollar income can afford to spend much more than $300,000 per year in mortgage payments and not be “housing-cost burdened.” Similarly, a household with $15,000 annual income may be “housing-cost burdened” is they must spend $3,000 (i.e., 20%) of their income on rent.

        The authors confirm that a more realistic criteria is – a household is “housing-cost burdened” when the “residual income” left after housing costs is less than the local costs for taxes and basic necessities. This studies analysis for three different cities concludes that the “30%” criterion overstates the percentage of high-income households, and understates the percentage of low-income households, that are actually “housing-cost” burdened.

        The study doesn’t extend to analyzing how this more accurate metric affects the analysis of the supply of housing that’s affordable to the households in an area. However, it’s a direct step to conclude that the “residual income” metric would amplify the relative proportion of “housing-cost burdened” households among the “Very Low Income” (VLI) and “Extremely Low Income” (ELI) categories. (See The Gap Report 2020 by the National Low-Income Housing Coalition.

        And, of course, using “unfiltered” Census data can be significantly skewed by such atypical cases as student residents.

      • Re: “Development”

        “[R]emoving exclusionary single family zoning should provide a boost to housing supply over the long run, and help with affordability. It’s not a silver bullet and it’s not instantaneous.

        Nothing personal, but this statement is a perfect example of three logical flaws:
        1. The “cheap shot” fallacy: Using a loaded term “exclusionary”; and
        2. The “bait-and-switch” fallacy: Stating a true fact, followed by an unsupported implication; and
        3. The “smokescreen” fallacy: Using meaningless qualifiers solely to provide the claim with a cloak of inarguability.

        The rebuttals are simple:

        1. All zoning is “exclusionary.” That’s the sole purpose of zoning. “Single-family zoning” is undefined, and there’s no evidence that whatever that term means is a significant barrier to affordable housing in the overall context (e.g., when there’s plentiful land zoned for “multi-family”) But we’re supposed to feel “single-family” zoning is not only a limit to affordable housing — it’s unethical because it’s somehow uniquely “exclusionary.”

        2. It’s probably true that relaxing or removing any approval criteria will provide an “boost” (even if one net dwelling) to housing supply. It’s absolutely not a foregone implication that the result will “help with affordability.” The obvious case is demolishing an older, less costly rental dwelling with two $500K condos will WORSEN housing costs. This isn’t hypothetical. Plenty of supporting research on direct (as above) and indirect (increased costs) displacement from upzoning “single-family” neighborhoods.

        3.”Over the long run” and (redundantly) “not instantaneous” really provide no information about HOW beneficial (if any) the action would be. Really, no good research should be using terms like these. The appropriate qualifier would be “We have no idea what the effect would be …”

        — Paul

      • Hi Paul,

        Do you have an example where a duplex or townhomes were built that cost more than a new detached single family home? I’ve been looking for real world examples here. I’ve had an example literally across the street from me where each townhome sold for ~$450,000 while two new detached single family homes about 5 properties away sold for $700,000 and $800,000 respectively. How is that not helping with affordability? The point is that as properties get redeveloped over time, policies now allow for more types of housing options should the builder/buyers want it. That’s it. That’s the exclusionary part. Previously you could only put in a detached single family home. Now you can do that, or if the builder/buyers want, you can put in 2 or 3 townhomes.


      • Josh,

        You are ignoring the actual data and using an example that is wholly irrelevant.

        1. No matter how you measure it, almost the entire population of truly “housing-cost-burdened” households is among the “Extremely Low Income” (ELI) and “Very Low Income” (VLI) households.

        * Based on Census data locally (Eugene, OR) and nationally (National Low-Income Housing Coalition 2020 “Gap Report.”

        These households are almost entirely renters and have incomes far, far below what would be necessary to buy (or rent) a $450,000 condo.

        2. The credible research is overwhelming that adding supply at $450,000 will not have a significant impact on housing costs in the range that would be affordable to ELI and VLI households. “Trickle Down” is a fraudulent claim with respect to the real housing affordability crisis.

        3. The evidence is also clear that market-rate development *cannot* produce housing with costs in the range that would be affordable to ELI and VLI households. (See NLIHC “Gap” report.)

        4. Further, the evidence is clear that in a constrained market, developers will (unsurprisingly) build new housing in the price range that is optimal for return over risk. The condos you site are an example — and are in no way “affordable.” If you want to remove the operative constraint, open more land up to development and require some or all of it to require lower-cost housing.

        5. Credible research (and an informed understanding of the “real-world” housing market) make clear that when previously lower-housing-cost neighborhoods (often neighborhoods of color) that allowed only one dwelling on a lot are upzoned to allow multiple dwellings on a lot (not just an ADU), speculation of redevelopment INCREASES housing costs and displaces lower-income households.

        6. Your comment that “The point is that as properties get redeveloped over time” actually highlights the problem. The most “affordable” housing is often older, distressed stock. When there is no restraint on the nature of “redevelopment” that replaces these homes, there is a net loss of “affordable housing.”

        It’s honestly disappointing that, instead of bring forward credible research and analysis in your blog, you continue to parrot the false narrative that “upzoning” — that leaves all decisions to the market as to what gets developed — magically helps address the real problem of “housing affordability.”

        As a final criticism, a researcher should not be relying as “analysis” an incidental example (condos versus SF homes) without even any relevant facts, such as dwelling and open space sizes, real estate market data, etc. All your one example illustrates is that the market in your area is so constrained that developers are choosing to build at the high-midrange of cost — *regardless of housing type*! The “more choice” is a benefit only to well-off households and developers. This nonsense doesn’t add any “choice” to poor households.

        I would suggest you need to bring in some analysts who actually have expertise in “housing-cost-burdened” issues and present more credible information to your blog readers. A great starting point would be to contact the NLIHC for references.

        — Paul

      • Hi Paul,

        In my mind there are 2 main facets to this conversation. The major need for better housing affordability today is absolutely at the lower end of the spectrum. And using residual income instead of 30% of income shows an even larger need. The other part is ensuring an adequate supply of new construction to accommodate current demand and certainly planning for future growth. Restricting development is not the answer there.

        While that new construction will not be Affordable, it does help with affordability for the broader market, or at least among those with AMI of around 80% or higher. Housing filtering does happen. Older homes are more affordable than newer homes, provided the location or amenties are approximately the same. But it does not filter down to the 0-50% AMI unless it is in disrepair, or worse.

        Now, both of these major aspects need to be addressed and I agree, focusing just on one is not right. Each basically requires a different set of policies. For the low-income need, it requires a massive investment of public dollars. For the second, it revolves more around the zoning and land supply parts which allow for the private development.

        In case you haven’t seen it, the HB 2003 (regional housing needs analysis) methodology paper has a lot of useful information along these lines.

        Click to access 2020-RHNA-Technical-Report-Final.pdf


      • (Yes, I have seen the HB2003; and it is inadequate.)

        You make the statement “Restricting development is not the answer there.” as if that is somehow an obvious.

        Riddle me this: Then what is zoning for? Why do we have a UGB?

        What you cannot seem to accept is that HB 2001 will be HARMFUL to many lower-wealth households.

        I will leave it at my suggestion: Bring in some qualified experts/researchers/advocates for housing affordability.

  3. I just went back and reviewed the 2020 Gap Report. Nationally, 92% of “severely cost-burdened” households (spending more than half their income on housing) have income that is less than half the Area Median Income — in Eugene, that means less than about $25,000.

    In contrast, there’s a surplus supply of “affordable housing” for households with income a few ticks above 50% of AMI.

    The analysis for Eugene is in the same ballpark. As we get more data from the 2020 Census, the disproportionality is likely to be more extreme.

    There’s the real problem. HB 2001 does NOTHING to help, and in some cases will make things WORSE.

    Let’s keep the “debate” focused on the real “affordability” problem, instead of repeatedly diverting to the “every little bit of additional supply will help” excuse for HB 2001. Even if HB 2001 does no harm, it is an utter waste of time to benefit only well-off households and developers.

    And that’s not even considering the way that HB 2001 will exacerbate longer commutes and the impact on climate change, and the gross disruption of urban infrastructure planning.

    • We disagree on how townhomes are going to exacerbate commutes and climate change. Increasing neighborhood density, even if only a little, lowers the economic impact of development, as people would generally live closer to work, to stores, to restaurants, etc.

      But there is no disagreement on the low-income issues that currently exist. If you look at PDF pg 50 of the HB 2003 link, you can see that ~60% of the current need is for 0-50% of AMI, and its 80% of the current need for 0-80% of AMI. The challenge there is twofold. First and foremost is funding. Where does Oregon get the, roughly, tens of billions of dollars needed to build those units? Second, siting those units within our communities. That’s a political challenge, but one nonetheless.

      Click to access 2020-RHNA-Technical-Report-Final.pdf

      I may be projecting here, or trying to read between the lines, but the focus has generally been way too much on HB 2001 and not enough on HB 2003. HB 2001 as I mentioned earlier, will provide a marginal boost to housing supply over the long-run. HB 2003 could, I stress could, move the needle more on housing supply provided the rule making and implementation prove effective. I’m not involved there but DLCD is currently working on that. We shall see what the final result looks like.

      • You use a “Straw Man” — I never argued that “townhouses” are going to exacerbate commutes. Because Eugene has to implement the most Draconian measures of HB 2001, but most of the surrounding towns do not, economically mobile households that want single-family, detached houses with a yard will locate in these smaller towns. That’s the exact opposite of sensible housing policy.
        You might look at what’s already happened with “leapfrog sprawl” because Eugene has refused to do a credible buildable lands study and has maintained an extremely restrictive UGB. Substantial SF-D development has shifted to outlying towns.
        Easy to say too much focus has been placed on HB 2001 when it can’t be justified and the harm is ignored. (E.g., displacement and infrastructure chaos).
        I agree HB 2003 should be revised, but HB 2001 should be repealed.

      • No matter what you want to call it – duplex, triplex, townhomes – that’s what HB 2001 is about. I’m not sure how that is a straw man. In terms of Eugene specifically, I do not know the details. To your point about the UGB, the legislative intent of HB 2003 is to make sure the zoning and/or land supply are appropriate to meet housing demand. I would hope your local city council would be interested in hearing feedback on UGB expansion as that remains under local control. In terms of changing state law I would hope your local legislators would want to hear from their constituents.

      • To clarify … the straw man is claiming some housing type was bad for the climate. No, it is the unwise and arbitrary inclusion of Eugene, but exclusion of surrounding towns under the dictates of HB 2001 that causes more commuting miles.

        You indicate you’re not familiar with our area. Bingo! The is the structural flaw in HB 2001 — dictating specific code in a one size fits all manner without enabling local facts to be taken into account.

        As you point out, HB 2003 at least attempts to have some local analysis come into play.

        I’ve been in active contact with legislators including HB 2001 sponsors and opponents. I’ve pressed sponsors for their evidentiary and analytic bases for their claims. They can offer only their “beliefs” larded with opinion pieces that really on the same unsupported claims and dodges.

        (I was the person who pointed out to Speaker Motel that all the single-family subdivisions covered by restrictive covenants limiting lots to a single dwelling would be exempt from HB 2001 dictates. Instead of recognizing the gross inquiry that would arise, she put a band-aid on the bill by adding a provision that such future provisions would not be enforceable. This, of course, did not affect exciting CC&RS. But it got “pitched” as if it did.)

        I could bore you with the email threads, but I assure you the overwhelming weight of evidence tilts heavily against HB 2001

      • Correct me if I’m wrong, but I think the report page you referenced is actually page 44 of the report.

        This is either wrong or misleading to the point.

        Most glaring is the so-called “need” for households with income 120 percent of greater of AMI. This “need” can be satisfied by housing that is less costly than these households can afford. Again … study the actual market. When housing is most scarce at the bottom income categories, households buy into housing supply that is above what they can afford. So, when housing is developed that IS affordable to this list bracket, they can buy such housing, freeing up supply above and lowering costs. This is “trickle up.” Just another example that the housing market is segmented and stratified, and doesn’t operate like gasoline or soybeans.

        It also appears the numbers are at odds with the Census data, although the interpretation is unclear. It seems to suggest that 54,000 dwellings statewide are needed for VLI & ELI households for some decades in the future. The Census data indicates just Eugene is already leaving at least 13,000 affordable dwellings for these categories.

        BTW, from my experience as a member of Eugene’s advisory committee on the buildable lands study, EcoNorthwest is hardly credible. I discovered a huge mistake in the way they counted me housing that was so bad the City Council followed my recommendation to not approve their report and sent them back for another six months of analysis. The end product was clearly still “cooked” by unsupportable assumptions that delivered what the planners wanted — no need to expand the UGB.

        One more time … bring in people who actually are experts on the true housing affordability issues.

      • That is correct, PDF pg 50 or report pg 44 shows the table I was referencing. And yes building homes in the $200,000 or $300,000 range would provide some trickle up aspects. That’s the same concept as building $500,000+ homes too. That means the higher income households buy those and do not compete for the lower priced units, driving those prices up.

        One difference today is you do not need to subsidize $500,000+ homes while private developers cannot deliver $250,000 homes at current land prices and development costs etc. without some sort of subsidy. I know you previously said to lower building costs. I agree that would be a better method. It’s an easier policy to allow for more market rate construction than find the funding to subsidize new construction.

        If there are methodological issues, I would suggest you bring those to the attention of DLCD as they are going through their rule making now.

      • You said: “That’s the same concept as building $500,000+ homes too. That means the higher income households buy those and do not compete for the lower priced units, driving those prices up.”

        The “trickle” effect occurs only when significant additional inventory is added in a category where there’s a significant shortage. That’s why “trickle down” doesn’t happen in current markets and “trickle up” does.

        The housing market is more complex than beans and gasoline.

        The fact that expensive housing is more likely for the market to build is one reason HB 2001 is harmful (as I’ve explained).

        If code is to be radically changed, the place to do it is on low-grade commercial property along good public transit routes. In Eugene, a HUGE amount of new, “workforce” apartments could be built along the BRT route (W. 6th & 7th Aves) using the Multiple-Unit Property Tax Exemption except that, even low-grade commercial land along this route is too expensive because of its commercial zoning. By “downzoning”, these properties would become affordable for tax-exempt apartments.

        But that would “gore” real estate investors, not renters and homeowners, so the YIMBYs have decided to assuage their guilt with “feel-good” measures like HB 2001 — blaming “racist” homeowners (no matter their race or wealth) for being the primary cause of the “housing affordability” crisis.

        It would have been so much better if State staff (your office and LRO) had gotten Legislators credible facts, instead of the garbage that DLCD’s zealots pushed.

      • While I appreciate your vote of confidence in our office and LRO, given how our conversations have gone, I’m not sure you would have liked how such a report would have turned out.

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