Homeownership Built to Last: Balancing Access, Affordability, and Risk after the Housing Crisis

2. Is Homeownership Still an Effective Means of Building Wealth for Low-Income and Minority Households?

50 2 Is Homeownership Still an Effective Means of Building Wealth for Low-Income and Minority Households? christopher e. herbert, daniel t. mccue, and rocio sanchez-moyano 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 in the early 1990s on boosting homeownership rates as a policy goal can be traced in no small part to the seminal work by Oliver and Shapiro and by Sherraden, which highlighted the importance of assets as a fundamental determinant of the long-run well-being of families and individuals.1 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 particular emphasis on the tremendous gaps in homeownership rates according to 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 prominence to the foundational role that homeownership plays in providing financial security.2 The authors thank Eric Belsky, Jennifer Molinsky, Carolina Reid, and conference participants for helpful comments and suggestions. 1. Oliver and Shapiro (1990); Sherraden (1991). 2. Herbert and Belsky (2006). 02-2564-0 ch2.indd 50 5/14/14 11:08 AM homeownership: a means of building wealth? 51 But while faith in homeownership’s financial benefits is widespread, 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. In 2001 the Joint Center for Housing Studies (JCHS) hosted a symposium with the goal of “examining the unexamined goal” of boosting low-income homeownership .3 The general conclusion that emerged from this collection of papers was that lower-income households do benefit from owning homes, although this conclusion was subject to a variety of “caveats and codicils.”4 A few of these caveats related to whether financial benefits were likely to materialize, with research finding that all too commonly homebuyers sold their homes for real losses while alternative investments offered higher returns.5 In perhaps the most comprehensive critique of the policy of fostering low-income homeownership, Shlay’s review of existing scholarly evidence cast doubt on the likelihood that either the financial or social benefits of owning would be realized.6 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 causing more than 4 million owners to lose their homes to foreclosure.7 Many of the criticisms concerning the financial risks of homeownership are not new, but the experience of the last five years has certainly given new impetus to these arguments. However, there are also concerns that changes in the mortgage market and in consumer behavior may have exacerbated these risks, increasing the odds that owners will, at best, be less likely to realize any financial gains from owning and, at worst, face a heightened likelihood of foreclosure. The goal of this chapter 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. Has the experience of the last decade proven the arguments of earlier critics of homeownership? Have changes in the market affected whether these benefits are liable to be realized? The chapter takes three approaches to addressing these questions. We begin by presenting a conceptualization of the risks and rewards of homeownership as a financial choice, with a particular eye toward whether the odds of a beneficial outcome are less for lower-income and minority owners. This review also assesses whether recent experience has altered this calculus—as opposed to just raising awareness 3. Retsinas and Belsky (2002b). 4. Retsinas and Belsky (2002a, p. 11). 5. Belsky and Duda (2002); Goetzmann and Speigel (2002). 6. Shlay (2006). 7. Joint Center for Housing Studies (JCHS;2012); Kiviat (2010); Li and Yang (2010); Davis (2012). 02-2564-0 ch2.indd 51 5/14/14 11:08 AM 52...