Homeownership Not Always Best Option for Low Income Families
Realities Point to Renting as More Viable Choice
For Immediate Release: January 11, 2005
Contact: Debi Kar, 202-387-5080
The coming burst of the speculative
bubble in the housing market and its implications for all American homeowners
highlights the serious need for more balanced housing policies that take into
account the merits of both homeownership and affordable rentals. A new report
from the Center for Economic and Policy Research (CEPR) entitled “Who's
Dreaming? Homeownership Among Low Income Families” by Dean Baker, finds
that the economic realities facing low-income families make homeownership a less
desirable housing option.
“Homeownership should not
always be viewed as the primary housing option for low-income families,” says
CEPR economist and co-director Dean Baker. ”Affordable rentals may make more
sense given the economic realities confronting low-income families.”
Two main factors that make
homeownership desirable for middle-income families are less relevant to
low-income families. These factors are the lack of tax benefit from the mortgage
interest tax deduction given little or no income tax liability for low-income
families, and the high transaction costs from buying and selling that have a
greater impact on low-income families who have a low median homeownership period
of just four years.
The recent run-up in home prices in many parts of the country
makes it unlikely that homebuyers (including low-income homebuyers) will
experience capital gains when they sell their homes. In fact, it is likely that
in many bubble-affected regions, low-income homebuyers will actually sell their
homes for less than what they paid, after adjusting for inflation.
potential capital losses for the typical low-income homebuyer relative to
renting could range between twenty-five percent of their total rent over the
four-year median period of homeownership to an amount approximately equal to the
total cost of renting over the four-year period.
a longstanding goal of public policy has been to increase the national rate of
homeownership, there is reason to question the merits of recent efforts to
expand homeownership among low-income families, such as the American Dream Act,
which provides down payments to qualified low-income families. Because of the
realities confronting low-income families, many such families may be made worse
off by becoming homeowners instead of renters. In such cases, government
subsidies for homeownership may aid real estate intermediaries at the expense of
the families they are designed to help.