The Boom,the Bust and the Future of Homeownership

This article investigates the boom and bust in U.S. homeownership rates over the 2000–2010 period. Using individual‐level census data, we first estimate 204 homeownership regressions stratified by household age (21, 22, …, 89) and survey year (2000, 2005 and 2009). Shift‐share methods confirm that changes in the model coefficients that reflect household attitudes, lending standards and other market conditions—but not population socioeconomics—were the primary driver of the boom and bust in homeownership over the decade. This pattern holds for nearly all age groups and is more pronounced for recent movers. Results also suggest that homeownership rates may have come close to bottoming out in early 2013 at 65% after falling roughly four percentage points from their peak in 2006. This suggests little lasting effect of the grand homeownership policy experiment of recent decades.     

Is Timing Everything? Race,Homeownership and Net Worth in the Tumultuous 2000s

We use the Panel Study of Income Dynamics to estimate how net worth was affected among low‐ and moderate‐income households who became first‐time homebuyers at different points during the volatile 2000s. We address selection using propensity score matching and estimating difference‐in‐difference models, and use quantile regressions to account for the skew in net worth outcomes. Results highlight the significance of race in the relationship between first‐time home buying and net worth during the decade. Although timing was critical to the short‐term trajectory of net worth for whites, total net worth declines for black first‐time homebuyers regardless of economic climate. The most dramatic differences between black and white new homebuyers is their neighborhood locations, with blacks purchasing in predominantly black neighborhoods with lower housing prices and price appreciation, and lower and declining rates of homeownership.     

The Influence of Household Formation on Homeownership Rates Across Time and Race

Homeownership rates equal the number of households that own homes divided by the number of households in the population. Differences in the propensity to form a household, therefore, may contribute to changes in homeownership rates over time in addition to long-standing racial gaps in homeownership. We examine these issues on an age-specific basis using data from the 1970 to 2000 public use microsamples of the decennial census. Results indicate that lower headship rates tend to reduce homeownership rates. This pattern is most notable for individuals in their early and mid 20s. For these individuals, declining headship rates between 1970 and 2000 reduced homeownership rates by three to five percentage points. Moreover, 2000 African American headship rates narrow white–black gaps in homeownership by roughly three percentage points, whereas 2000 Hispanic headship rates widen white–Hispanic gaps in homeownership by two to three percentage points. Thus, controlling for differences in headship behavior, white–black homeownership gaps are somewhat more severe than previously recognized, but the reverse is true for white–Hispanic gaps.     

Language, Agglomeration and Hispanic Homeownership

As of the fourth quarter of 2007, 74.9% of white non-Hispanic families but only 48.5% of Hispanic families owned homes. We argue that low rates of homeownership in Hispanic communities create a self-reinforcing mechanism that contributes to this large disparity. In part, this occurs because proximity to other homeowners belonging to a family's social network improves access to information about how to become a homeowner. Role model effects may also be relevant. We investigate these issues using household-level data on out-of-state movers from the 2000 Decennial Census. Three especially important results are obtained. First, proximity to Hispanic homeowners in the 1995 place of residence increases the propensity of a Hispanic family to own a home in 2000. Second, that effect is especially strong with respect to proximity to weak English-speaking Hispanic homeowners. Third, these patterns hold regardless of the Hispanic family's own ability to speak English. From a policy perspective, these results suggest that local programs designed to promote homeownership among weak English-speaking Hispanic families likely increase Hispanic homeownership beyond just the immediate program participants.     

Homeownership Determinants for Chinese Americans: Assimilation, Ethnic Concentration and Nativity

Chinese homeownership rates in the Los Angeles Consolidated Metropolitan Statistical Area adjusted by socioeconomic and housing market characteristics are, on average, 18 percentage points higher than those of native white households. This finding runs contrary to most immigration literature, which suggests that immigrants usually lag behind the host society in measures of economic well-being. This study focuses on two additional factors, which most economic studies of homeownership choice ignore, that may play a role in helping Chinese households achieve high homeownership in ways that other immigrant groups do not. The results of this analysis find that the high homeownership rates cannot be explained by the English skills of households. The cultural influence of homeowning peers may have partially contributed to the higher homeownership of Chinese households. While living in ethnic Chinese communities lowers homeownership rates, in general, it helps improve the likelihood that Chinese immigrants will own a home. Finally, we find that there is great diversity among Chinese subgroups with respect to their likelihood of owning a home, but very little diversity with respect to the education and income level of Chinese households across subgroups.     

The Dynamics of Homeownership: Eliminating the Gap Between African American and White Households

This article uses a sample of young renters from the Panel Study of Income Dynamics and a continuous‐time econometric model to explore not only the initial tenure transition to first‐time homeownership, but also subsequent possible tenure transitions to a second owned home, back to rental tenure and, indirectly, to a second owned home from rental tenure. Once estimated, the predicted probabilities of these transitions are used to calculate the probability of homeownership at various times for households in the sample. These estimates are done separately for African Americans and whites for two different 11‐year time intervals, 1987–1997 and 1993–2003. A primary result is that if African American education, income, net wealth and savings behavior could be brought in line with that of white households the majority of the racial gap in homeownership could be eliminated in either time period.     

Distributional Consequences of Alternative Mortgage Instruments

One of the major factors hindering the introduction of alternative mortgage instruments is the possibility of adverse consequences to certain groups of households seeking to obtain credit for homeownership. This study examines this issue through an analysis of cross-sectional household data obtained from the 1970 Survey of Consumer Finances. Using multiple regression analysis, a series of structural demand models are derived and estimated. These models relate the probability of homeownership, levels of housing consumption, mortgage credit usage, and downpayment to income, assets, and other socioeconomic variables, to variables representing the relative price of housing and homeownership, and to certain variables representing the present value and cash flow costs of mortgage credit. Several mortgage-related variables are found to be influential in housing demand decisions. These models are then used to simulate alternative instrument introduction. The graduated-payment and price-level adjusted mortgages are predicted to be superior to the current instrument of mortgage finance in encouraging homeownership, housing consumption, and the use of mortgage credit among all household classes. The standard variable-rate mortgage, especially one tied to a short-term interest rate, is predicted to be inferior to the standard instrument, with the most adverse impacts upon lower-income, young, elderly, and black households.     

Housing Tenure Choice in Australia and the United States: Impacts of Alternative Subsidy Policies

This article compares the homeownership rates of young households in Australia and the United States and evaluates the impacts of the two countries' different approaches to subsidizing homeownership. Since about 1950, Australia's rate of homeownership has consistently been higher than that of the United States. The homeownership rate for young adults is also significantly higher in Australia. While the United States allows mortgage interest and property taxes to be deducted from income for tax purposes, Australia has provided cash subsidies for down payments and mortgage payments. We conclude that differences in housing costs and household characteristics do not explain differences in ownership rates. We also conclude that differences in subsidy policies have only a minor impact on ownership rates.     

Black and White Preferences for Neighborhood Racial Composition

The research investigates the existence, nature and magnitude of the preferences of races to voluntarily "self-segregate" into particular areas of urban housing markets. Housing market theory is employed to develop a model showing how housing price variations within a group can provide unambiguous evidence of their preferences for neighborhood racial composition. The model is operationalized in a multiple regression specification wherein the variations in a given racial group's housing prices become a function of the dwelling's attributes and the attributes of the neighborhood (including quality, status, stability and density) as well as housing submarket location and racial composition. The size and statistical significance of the coefficient of the last attribute provides the evidence sought.
The regressions are estimated using two micro-household data bases from St. Louis (1967) and Wooster, Ohio (1975), and results compared. Results show that St. Louis black owners had an aversion to larger black proportions within black submarket neighborhoods, with .7% lower housing prices associated with a 1% higher percentage black. Racial effects for black owners in preponderantly white areas and for black renters in all areas were statistically insignificant. St. Louis whites of both tenures did not demonstrate aversion to neighborhoods with higher percentages of blacks as long as they remained 25% black or less. In areas 25–50% black, however, white prices were 1.5% lower for owners and 3.2% lower for renters per 1% higher proportion black. Such associations continued in majority-black areas, although the magnitudes of the price effect became progressively smaller. Wooster whites showed an aversion to living in neighborhoods having even a few percent of blacks, with prices 11% lower for owners and 7% lower for renters in such areas compared to all-white ones.     

Homeownership Effects of Alternative Mortgage Instruments*

Most of the interest in alternatives to the standard mortgage instrument has centered on the ability of the alternatives to improve on the performance of the mortgage instrument over the business cycle. The focus in this paper is on the long-term effects on homeownership rates and associated additional residential construction. The instruments are found to offer potentially large increases in homeownership rates by reducing monthly mortgage payments. Widespread adoption of those instruments causing larger payment reductions would allow around one million more households to become owner-occupants. The demand for new single-family homes would increase over the long run by 3 to 4 percent a year. Homeownership could be further increased by a time-limited subsidy directed at moderate income families.     

Another Look at Tenure Choice, Inflation, and Taxes

The purpose of this paper is to explore the impact of inflation on the demand for housing. The first part of the paper presents a theoretical model that identifies the effects of inflation on the after-tax cost of housing and the choice between rental and owner-occupied housing. The second part discusses the results of a simulation model that measures the effect of inflation on the aggregate demand for housing, the aggregate homeownership rate, and the price of housing. The paper concludes that while inflation can be expected to increase the aggregate demand for housing and the price of housing relative to the general price level, inflation should ultimately lead to lower rates of homeownership. A corollary that is probably more relevant today is that lower inflation rates should reduce the real value of the housing stock and increase the homeownership rate. The paper also contains forecasts of the impact of the Tax Reform Act (TRA) of 1986 upon housing demand and the probability of homeownership for a variety of households.     

Effects of Housing Codes on Local Housing Markets

Housing codes are typically instituted in order to raise the average level of housing quality in a community. However, in doing so, the institution of a housing code likely has effects on other housing characteristics. Using data from municipalities in North Carolina, this study finds that municipalities with housing codes have higher average occupancy densities among all households and lower homeownership rates among low-income households, but housing codes have no statistically discernible effect on housing values and expenditures. The results suggest that housing codes are not costless; most importantly, codes force consumers to trade housing quantity for quality.     

Race and Post-Displacement Earnings Among High-Tech Workers

This study examines racial variations in post-layoff earnings among a cohort of workers displaced in 1985 from Silicon Valley's high-technology industries. The analysis shows that blacks and Hispanics suffered greater earnings losses than non-Hispanic whites, and that this racial disparity occurred both among those who found other jobs within the high-tech sector and among those who were reemployed outside the high-tech sector. There were no statistical differences in outcomes between Asians and non-Hispanic whites.     

Mobility-Tenure Decisions and Financial Credit: Do Mortgage Qualification Requirements Constrain Homeownership?

Housing analysts have generally assumed that mortgage qualification requirements significantly constrain homownership, however there has been no empirical evidence of this effect. By explicitly modeling and estimating the impact of mortgage qualification requirements on households' mobility and tenure decisions, this paper provides the first empirical evidence of the effect of these criteria on homeownership. The estimation results suggest that in 1986, mortgage qualification criteria did not provide a large constraint on homeownership. However, they also show that the impact of these criteria increases as the flow costs of owning decrease relative to those of renting. This implies that the nationwide significance of these constraints will vary with fluctuations in the macro economy, and that policies designed to limit the effect of these requirements will be more successful in economic environments favorable to homeownership.     

Rates of Return on Housing of Low-and Moderate-Income Owners

While long-term returns to capital invested in owner-occupied housing have been competitive with other investment alternatives, no evidence exists on the market performance of the owner-occupied housing in which low- and moderate-income households would be most likely to invest. This article thus attempts to answer the question of whether the "affordable housing units" that are relevant to policy discussions concerning low- and moderate-income homeownership have experienced different rates of price appreciation than have higher valued dwellings. The national file of the American Housing Survey is used to estimate appreciation rates by value class in representative U.S. housing markets. We find that for the period 1974 through 1983 appreciation rates for lower valued housing were generally about equal to those for higher valued housing.     

Are Rising College Premiums Capitalized into House Prices? Evidence from China

Many areas in China experienced steeply rising house prices beginning in 2003. We test whether a change in local residency requirements may have played a role in driving up house prices in some places by tying access to Chinese universities to local homeownership status in the presence of a rising college premium. We generate a novel dataset that combines China housing market and neighborhood data with household and university admission data. We find evidence of capitalization effects and a sizable increase in the likelihood of homeownership postpolicy change in places with the greatest preferential access to China's elite universities.     

Does Homeownership Prolong the Duration of Unemployment?

We examine the effects of homeownership on individuals' unemployment durations. An unemployment spell can terminate with a job or with nonparticipation. The endogeneity of homeownership is addressed by estimating a full maximum likelihood function jointly modeling the competing hazards and the probability of being a homeowner. Unobserved factors contributing to the probability of being a homeowner are allowed to be correlated with unobservable heterogeneity in the hazard rates. Not controlling for ownership selection, there is neither a significant difference in the job‐finding hazard nor in the nonparticipation hazard of unemployed owners and renters. If we jointly model the ownership selection, we find that unemployed homeowners are more likely to find a job than renters.     

The Effects of Homeownership on Children's Outcomes: Real Effects or Self‐Selection?

This article examines whether there is a “homeownership effect” for lower‐income racial and ethnic groups who have been the target of public policies to expand homeownership. We use two different methods to account for selection, statistical matching and instrumental variable analysis; test direct and indirect (mediator) effects of homeownership on children's cognitive achievement, behavior problems and health using the Panel Study of Income Dynamics and its Child Development Supplement; and replicate the main effects tests using the National Longitudinal Survey of Youth. We find little evidence of beneficial homeownership effects and suggest that previous analyses may have mistaken selection differences for the effect of homeownership itself.     

The Investment in Housing As a Forward Market Transaction: Implications for Tenure Choice and Portfolio Selection

A model of tenure choice is presented which treats the benefits and costs of homeownership from a theory of finance perspective. The incremental benefits from homeownership over renting housing services are from two sources: protection against rental price risk (a forward transaction in the housing market) and from a possible capital gain from the eventual sale of a house (substitutes for portfolio investment). The cost of these benefits is higher initial outlay on housing, which reduces the funds available for portfolio investments. The comparative statics of this model is presented. It is shown that rental risk and portfolio risk add to the value of homeownership. Since homeownership is a partial substitute for portfolio investment, it is shown that the lower the covariance between portfolio returns and future home prices the more valuable is homeownership. In the presence of differential borrowing opportunities it is shown that the leverage available to housing significantly increases the value of homeownership.     

Homeownership and Child Welfare

Recent studies have concluded that homeownership is beneficial to children. This result is important because it is used to justify large government subsidies that encourage homeownership. We reexamine the results of two of the most prominent of these studies using the Panel Study of Income Dynamics, Public Use Microsample, and National Longitudinal Survey of Youth data. We extend this research by controlling for residential mobility, wealth, dwelling type and vehicle ownership, as well as by using a "differences in differences" methodology to deal with possible treatment effects bias. We find that the beneficial effects of homeownership previously measured are substantially reduced or eliminated by controlling for these factors. We confirm these results using data from the Early Childhood Longitudinal Study.