Reevaluating the Costs and Benefits of Homeownership

1
Re-evaluating the Costs and Benefits of
Homeownership

• Ingrid Gould Ellen

2
Praise for Homeownership

• An owner-occupied home is a more wholesome,
  healthful, and happy atmosphere in which to raise
  children.
• -Herbert Hoover
• Owning a home can increase responsibility....The
  man who owns a home has something to be proud of
  and reason to protect and preserve it.
• -Lyndon Johnson
• Where homeownership flourishes, neighborhoods are
  more stable, residents are more civic-minded,
  schools are better, and crime rates decline.
• -George W. Bush

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Why Might Homeowners Behave Differently?

• Likely to save more (default mechanism for
  saving)
• May invest more in home and surrounding community
  due to financial stake
• Tend to stay in communities/homes for longer
• Median length of tenure for renters is less than
  2 years
• Median length of tenure for owners is 9 years
• Learn financial and managerial skills from
  experience

4
Why Might Individual Homeowners Benefit?

• Increased saving/wealth accumulation
• In 2004, the median homeowning household had
  289,900 in net worth and 160,000 in housing
  equity.
• The median renters had about 4,000 in net worth.
  
• Stability and healthier homes for children
• Improved financial/managerial skills for parents
• Psychological benefits
• Enhances sense of control/security
• Encourages self-esteem

5
Why Might Households Benefit from Having more
Homeowners as Neighbors?

• More attractive/well-maintained homes nearby
• Greater social capital/more stable social
  networks due to more stable residents
• Improved public services, due to greater levels
  of civic engagement

6
Potential Costs of Homeownership

• Requires that people tie up large shares of their
  savings in a single asset
• Spatial Lock-in (dark side of stability)
• May increase economic volatility
• Encourages NIMBYism and segregation
• Homeowners more resistant to integration

7
Empirical Evidence?

• Consistently shows cross-sectional correlation
  between homeownership and positive individual and
  community outcomes
• BUT
• Effects typically diminish after controlling for
  length of tenure
• Studies never fully address unobserved,
  underlying differences between homeowners and
  renters
• Studies fail to control for level of equity in
  home

8
Does Homeownership Provide Same Benefits in 2009?

• Owners may not have same financial stake
• Negative equity is widespread
• Ownership may not facilitate savings in downturn
• Ownership may not provide same stability/security
  
• More than 6 million homeowners at risk of
  foreclosure over next four years

9
Existing Federal Subsidies for Homeownership

• Creating and subsidizing secondary market
• FHA mortgage insurance
• Tax Code
• Mortgage interest deduction
• Deductibility of property taxes
• Capital gains exemption

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Goals of Homeownership Policy

• Target borrowers on margin of buying/renting
• Provide help to households who need help
• Subsidize owning, not purchase of large homes or
  more land
• Discourage energy consumption and emissions
• Subsidize owning, not borrowing