Promoting Homeownership as a Strategy for Housing Affordability
In the United States, owning a home is the largest generator of wealth for families, exceeding even a household’s income or their level of educational attainment. In addition, housing costs tend to be lower for homeowners than for renters. Among low-income households, housing costs for homeowners are 10 percentage points lower than those of renters. Lack of access to homeownership is exacerbating existing racial inequities, with the homeownership gap between African-American and White households larger in 2021 than in 1968, when the Fair Housing Act was passed. At the end of 2020, the African-American homeownership rate was 44 percent compared with a rate of nearly 75 percent among White households. On August 24, 2021, the Urban Institute convened a virtual panel discussion, “Increasing Access to Homeownership: How America Can Increase Housing Affordability and Close the Wealth Gap,” suggesting strategies that governments and organizations such as community development financial institutions (CDFIs) can take to achieve wider, more equitable access to homeownership.
Mike Loftin, a nonresident fellow at the Urban Institute and chief executive officer at Homewise, presented his research, which served as the basis for the discussion, and moderated the panel. Panelists included Monique King-Viehland, associate vice president of metropolitan housing and communities policy at the Urban Institute and the former executive director of the Los Angeles County Development Authority; Lisa Mensah, president and chief executive officer of the Opportunity Finance Network; and Noel Andrés Poyo, the deputy assistant secretary for community economic development at the U.S. Department of the Treasury.
The Role of Homeownership in Housing Affordability
Loftin summarized his research into the relationship between ownership and housing costs for low-income households. Loftin found that, among households earning less than $50,000 per year, renters spend 34 percent of their income on housing compared with 24 percent of income for owners, even after accounting for the difference in income levels among different racial or ethnic groups, although some variation existed. In addition, Loftin found that 31 percent of low-income owners spend less than 20 percent of their income on housing compared with only 7 percent of low-income renters, demonstrating a strong connection between ownership and the prevalence of housing cost burdens.
One major reason for the affordability advantage of homeownership is that, in the case of fixed-rate mortgages, the principal and interest owners pay are constant, with only taxes, insurance, and maintenance subject to inflation. For renters, inflation affects the entire cost of housing. Affordability is further enhanced when owners retire, because the completion of mortgage payments, which typically occurs during the retirement years, reduces housing costs to taxes, insurance, and maintenance.
Increasing Access to Affordable Homeownership
Although existing resources can be used to further efforts to increase homeownership rates among low-income households, challenges exist to deploying these resources more widely. King-Viehland recounted that during her experience in Los Angeles, more than 50 percent of her agency’s HOME Investment Partnerships block grants went toward homeownership activities, including rehabilitation and downpayment assistance. However, limited funding meant these funds were necessarily in tension with other important priorities, such as addressing homelessness or housing instability.
One challenge that Poyo noted is the lingering suspicion of mortgage lenders among residents of communities victimized by the subprime mortgage crisis. Even though research suggests that homeownership can really be a secure path to wealth building with the right financing terms, many of these residents doubt that it can.
Mensah echoed Loftin in identifying a larger possible role of CDFIs in advancing homeownership objectives, citing an institutional motivation to help close racial gaps in wealth and to do so with “fair and responsible products” that will not replicate the harms done during the subprime lending crisis. Mensah cited some of the CDFIs’ groundwork to help bring affordable homeownership projects to fruition including, for example, their work with the organization Come Dream Come Build in Brownsville, Texas, or the Fahe Network in Appalachia and Poyo identified possible uses of federal and local fiscal recovery funds to support affordable housing initiatives while looking ahead to innovations in fair and responsible mortgage products.
Because of persistent gaps in wealth among racial and ethnic groups, King-Viehland pointed to four strategies that policymakers can proactively deploy to reduce disparities in access to homeownership opportunities: enhancing targeted outreach through culturally competent, trusted community organizations; creating new approaches to mortgages that account for historic mechanisms of maintaining disparities, such as a reliance on credit scores for mortgage underwriting; growing downpayment assistance and housing counseling programs for historically marginalized groups; and enforcing current laws on fair housing and fair lending. Panelists noted that the coronavirus pandemic demonstrated the importance of housing in stabilizing families across generations. With renewed focus on addressing gaps in homeownership, progress toward increasing housing affordability and reducing the racial wealth gap is possible.