Wealth inequality has significantly widened in the U.S. over the last few decades. One way that wealth is built is through homeownership. Expanding homeownership among low-income and minority groups is seen as an important public policy in the U.S. to tackle the wealth gap.
But how important is homeownership in tackling wealth inequality? Ashleigh Eldemire, Kimberly F. Luchtenberg, and Matthew M. Wynter investigate this very important question in their paper “Does Homeownership Reduce Wealth Disparities for Low-Income and Minority Households?” The authors use the U.S. Department of Housing and Urban Development’s (HUD) Housing Choice Voucher (HCV) program as the laboratory to answer the question. The program provides eligible low-income households assistance with either rental payments or mortgage payments and homeownership expenses. In their analysis, the authors trace the changes in wealth outcomes of low-income households that went from getting housing assistance for tenancy to becoming homeowners. This empirical strategy takes care of unobservable factors across households that could affect wealth accumulation, while allowing wealth outcomes to vary by race.
The authors find that on average low-income households gain $3.3K in wealth as homeowners compared to being renters. Less wealth accumulation for minority-headed households is observed, consistent with recent results showing that homeownership does not reduce racial gaps in wealth. There is also evidence pointing to increased labor supply following the transitioning to homeownership but even here there is a disparity across different segments: minority households have comparable incomes but show lower work force participation rates. Neighborhood selection is a very important channel that can explain why minority-headed households end up with lower wealth outcomes. The other two channels are the financial fragility of the household, and timing of the home purchase.
Spotlight by Camelia Kuhnen
Photos courtesy of Ashleigh Eldemire, Kimberly F. Luchtenberg, and Matthew M. Wynter