Re-evaluating 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 NYU’s Furman Center for Real Estate and Urban Policy

3. 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 NYU’s Furman Center for Real Estate and Urban Policy

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 NYU’s Furman Center for Real Estate and Urban Policy

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 NYU’s Furman Center for Real Estate and Urban Policy

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 NYU’s Furman Center for Real Estate and Urban Policy

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 NYU’s Furman Center for Real Estate and Urban Policy

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 NYU’s Furman Center for Real Estate and Urban Policy

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 NYU’s Furman Center for Real Estate and Urban Policy

10. 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 NYU’s Furman Center for Real Estate and Urban Policy