Do low-income households benefit from homeownership?
This dissertation examines the costs and benefits of homeownership for low-income households and contributes to the literature through two empirical studies using the biennial Panel Study of Income Dynamics data for the period 1999 - 2007. The first study examines the influence of years of owner occupation and housing capital gains on household wealth and savings. The second study examines the influence of non-housing wealth on exits from homeownership.
The first study finds that low-income households derive limited wealth benefits from homeownership. The results indicate that, during the period 1999-2007, a median low-income household with a net wealth of $2,474 accumulated only $145 (2007 constant dollars) for each additional year of homeownership. However, these meager wealth benefits came at substantial risks to a large proportion of low-income homeowners, nearly 40% of whom suffered capital losses. The results also indicate that housing capital gains was only responsible for $34 in total annual total savings for a median non-mover low-income homeowner. Thus much of the annual savings of low-income homeowners were as a result of forced savings and could have been easily accomplished through a savings account. In addition, the results indicate that low-income homeowners experienced severe budget constraints and consumed much of the housing capital gains. Therefore, the study suggests that policies aimed at promoting wealth accumulation among low-income households would be more effective through non-housing instruments.
The second study finds that non-housing wealth has a significant inverse influence on exits due to involuntary reasons but no influence on voluntary exits. It also finds that low-income households are more likely to exit homeownership for both involuntary as well as voluntary reasons. The results indicate that a low-income homeowner with $18,100 in non-housing wealth will have 6% - 11% lower odds of involuntary exit in comparison to a median low-income homeowner with $ 4,830 in non-housing wealth. Poor health of the household head increases odds of exit for voluntary reasons by nearly 181% and unemployment by 79 %. In addition, a10% increase in the loan to value ration increase the odds of voluntary exits by 5.5%. Therefore, the study suggests several policy measures, such as savings reserve, higher downpayment requirement as well as unemployment and health insurance, so that low-income households can enjoy a more sustainable homeownership experience.
0630: Public policy
0999: Urban planning