Has Homeownership Really Worked For the US?

Homeownership has been widely seen as a vehicle for Americans to build wealth since the mid-1900s. Because of that, the US government has devoted many of its policy measures to making it easier for everyone to have access to homeownership. But now, with skyrocketing rents and increased costs of living which have markedly outpaced income growth, it’s becoming harder and harder for Millennials to buy homes.

Recent policy measures related to homeownership have centered on increasing access to mortgages so that people with low income can still buy homes. Credit availability is a vital part of purchasing homes, so access to credit is a crucial topic in housing finance policy. Policymakers want to increase access to credit, but not put the economy at excessive risk.

Last week, the White House announced plans to reduce mortgage insurance premiums to make it easier for low income buyers to afford homes. The lower fees are estimated to save new FHA borrowers an average of  $900 each year and are expected to encourage 250,000 first-time buyers to enter the market. Whether or not it will actually result in an increase of home purchases will have to be seen.

However, has homeownership really panned out for us? Other Western countries without pro-ownership policies seem to have similar rates of homeownership, and the biggest impact of all of our housing subsidies and tax breaks is that people buy bigger, more expensive homes, not more homes. Investing the majority of our income in housing pays off when the economy is doing well, but is disastrous if the economy tanks, as we learned in 2008. Perhaps we should direct some of that attention to other urban issues, like displacement or developing mixed income neighborhoods. Germany, which has a fairly low homeownership rate, has let property rights take a backseat by prohibiting luxury upgrades to ensure that low income renters aren’t displaced. Something like that is unlikely to happen in the US, but it’s interesting to see how lower ownership rates can change how the government responds to urban issues.