Homeownership Symposium - Is Homeownership Still an Effective Means of Building Wealth for Low-income and Minority Households? (Was it Ever?)

Chris Herbert, Daniel McCue, Rocio Sanchez-Moyano

HBTL-06:In many respects, the notion that owning a home is an effective means of accumulating wealth among low-income and minority households has been the keystone underlying efforts to support homeownership in recent decades. The renewed emphasis on boosting homeownership rates as a policy goal that arose in the early 1990s can be traced in no small part to the seminal work by Oliver and Shapiro (1990) and Sherraden (1991) highlighting the importance of assets as a fundamental determinant of the long-run well-being of families and individuals. The efforts of these scholars led to a heightened awareness of the importance of assets in determining life’s opportunities, enabling investments in education and businesses, providing economic security in times of lost jobs or poor health, and passing on advantages to children. Assessments of differences in asset ownership placed particularly emphasis on the tremendous gaps in homeownership rates by race/ethnicity and income and the importance of these gaps in explaining differences in wealth. In announcing their own initiatives to close these homeownership gaps, both President Clinton and President Bush gave prominent attention to the foundational role that homeownership plays in providing financial security.

But while faith in homeownership’s financial benefits are widely subscribed to, there have long been challenges to the view that owning a home is necessarily an effective means of producing wealth for lower-income and minority households. These criticisms have only grown louder in the aftermath of the housing bust, as trillions of dollars in wealth evaporated leaving more than 10 million homeowners owing more than their homes are worth and leading to more than 4 million owners losing their homes to foreclosure. Many of the criticisms raised about the financial risks of homeownership are not new, but the experience of the last five years has certainly given new impetus to these arguments. The goal of this paper is to reassess in the light of recent experience whether homeownership is likely to be an effective means of wealth creation for low-income and minority households.