The Social Benefits and Costs of Homeownership: A Critical Assessment of the Research

Title: The Social Benefits and Costs of Homeownership: A Critical Assessment of the Research

Date: 5/1/2000

Author(s): William M. Rohe, George W. McCarthy and Shannon Van Zandt

Executive Summary:

A large part of the American dream is to own a home and a piece of land to call your own. Historically, homeowners needed to enter the middle class before they could afford a house. In recent years, the growth of the low downpayment and flexible underwriting standards has begun extending the mortgage market and, as a result, homeownership into new segments of the population.
The outgoing Clinton administration has played an important role by publicizing and setting high goals for homeownership rates. These goals explicitly assume that homeowners do better in terms of financial and social outcomes than renters. In fact, homeownership is also thought of as a strategy to stabilize deteriorating or dangerous neighborhoods.

This paper demonstrates that homeownership does have positive social impacts. Researchers have found homeowners are more satisified, are more likely to participate in voluntary and political activities, and are more committed to their neighborhoods. But the evidence for the social benefits of homeownership are not as conclusive as often presented in public dialogue and debate. Much of the evidence supporting these findings does not carefully separate the effects of owning a home from the impact of earning more or having more education. Not controlling for those two influences may overstate the social benefits of homeownership.

This paper also points out that insufficient attention has been paid to potential social costs associated with homeownership, particularly for lower-income households. Researchers have shown that households that own a home are less mobile than renters. Reduced mobility makes it more difficult for a household to move in search of better employment opportunities. Furthermore, if a household experiences a long-term job loss or unexpected medical costs, they may not be able to pay the bills. While breaking a lease on a rental unit is problematic, the stress and trauma caused by defaulting on a mortgage is more serious.

Under the right circumstances, homeownership appears to have very positive social effects. Future research must clarify, however, how and when these effects are independently produced by homeownership. Studies must disentangle the effects of homeownership from the impact of income and education. A better understanding is also needed on the social costs of default and the loss of mobility. Given the reality that the benefits of ownership do not accrue evenly to everyone, research must better define the circumstances under which homeownership produces real social benefits.