Q and A

Q & A

"The Average Is Almost Meaningless"

An Interview With John Adams, Housing Policy Expert

photo of John Adams
Photo courtesy of the University of Minnesota
Title Professor
Organization University of Minnesota
Web site www.hhh.umn.edu/people/jadams/
Other Adams is a faculty member in the Hubert H. Humphrey Institute of Public Affairs at the University of Minnesota. He has been a National Science Foundation Research Fellow at the Institute of Urban and Regional Development at the University of California at Berkeley and an economic geographer in residence at the Bank of America. Among his books are Housing America in the 1980s and Minneapolis-St. Paul: People, Place, and Public Life.

Behind the headlines about falling house prices and homeownership rates are stories that are more challenging to summarize but tell us more about changes in national housing consumption. John Adams, professor emeritus of geography at the University of Minnesota, has spent a good deal of his career telling those stories. Adams is an expert in housing policy, housing finance and markets, regional economic development policy, urban planning and land use, and urban sprawl. He foresees significant changes in U.S. homeownership as the nation's demographics evolve.

EconSouth: What are some of the factors that cause the overall rate of homeownership to fluctuate?
John Adams: One of the things that needs to be pointed out is [that] the way in which people buy and use housing at any given time is the consequence of several things going on at the same time. One, of course, is the inflation rate, which then is reflected in interest rates. Another is the general economic prosperity of the moment. Sometimes prosperity and inflation go together, but sometimes they don't; they'll push in different directions. The third thing that is overlooked is the revision of the Internal Revenue Service code in 1986, which had as one of its consequences the removal of some of the profitability of owning, operating, and investing in rental housing. As a result [of the code changes], many people who owned rental units decided that owning and operating rental housing was no longer as profitable as other investment opportunities, so they converted rentals to condos. One of the results of converting to condos in the middle and late '80s and into the '90s was an increase in home ownership rates. Renters became owners because they didn't want to move, and at least in part of the '80s the terms for which one could make those kinds of purchases had interesting effects.

ES: How meaningful an indicator is the rate of homeownership in a given metropolitan area?
Adams: As a geographer, I try to draw people's attention to national averages that, when you start looking at them closely, start to dissolve into regional variations that in some ways are far more complicated and interesting than the national average. For example, you look at Atlanta, Sandy Springs, and Marietta, Ga., in the 2000 census, and you see the population of that metro area increased almost 40 percent in a 10-year period.

When that happens in a place, the growth starts to feed on itself. When a place is growing fast, money flows into the place from outside to invest in the opportunities that the growth creates. And then people getting out of college look for where the jobs are; it becomes kind of a positive, expanding cycle. But at the same time that Atlanta's growth is going through the roof in the '90s, some other metro areas are losing population. So the average [growth rate] turns out to be something like 13 or 14 percent, but the average is almost meaningless when you look at how much variation there is around that average.

ES: You've written that a house is an investment that requires an investment.
Adams: If you just bought [a house] and lived in it and didn't do anything to it, it'd be falling down around your ears in 36 years. You have to take care of these things. The scuttlebutt in the literature says if you're not investing 2 percent a year in the house, it's deteriorating in the absolute quality and in the absolute value. We'll see. Of course, it also depends a bit on what's going on around it in the neighborhood and the community in which it's located. And then there's a cachet associated with this neighborhood versus that neighborhood and this suburb versus that suburb. For the press to talk about this in very gross terms can mislead people, who then think,"Well, look, this was going on in Las Vegas in 2003, 2004, 2005. Therefore, it's going to happen to me in Altoona, Pa." It doesn't work that way, especially in this huge country, where what's going on in Miami and what's going on in Portland, Ore., are two completely different worlds.

This interview was conducted by Ed English, a staff writer for EconSouth.