Racial/ethnic differences in housing outcomes for first‐time,low‐income home buyers: Findings from a National homeownership education program

Abstract

Federal housing policies aimed at making homeownership more accessible through education and affordable lending have been successful in raising the homeownership rate among minorities. By marketing homeownership to underserved populations and helping them overcome financial and informational obstacles, such programs might be expected to promote equality in housing outcomes, including housing quality, neighborhood composition, and neighborhood conditions, for minority homeowners.

This article examines the experience of participants in a national home‐ownership education program. While the transition to homeownership has been associated with modest progress, it does not overcome persistent disparities in housing quality. Homeownership appears to lead to poorer neighborhood conditions for all lower‐income buyers—not just minorities—and may be exacerbating social and spatial isolation rather than helping to overcome it. Differences in neighborhood outcomes, however, may be due to locational preference rather than discrimination in housing and mortgage markets.     

Economic shifts and the changing homeownership trajectory

Abstract

From 1980 to 1988, homeownership rates declined substantially for the first time in the postwar era. They stabilized and began to creep upward during the 1988–94 period. After presenting a long‐term perspective, this article describes and examines two of the underlying forces of this upswing—demographic aging and improved levels of affordability—as well as the impact of immigration and minority lags. Fundamental economic factors are then surveyed: national and regional housing price shifts, housing production cycles, measures of housing affordability, and employment. Several key economic parameters of the post‐recession housing market are presented as a guide to the short‐term future.

Post‐1988 homeownership rates initially rose because of an aging demography. But gradually, the new affordability became part of the dynamic. The new affordability was driven by the decade‐long slowdown and weakening of housing prices, lower post‐recession interest rates, and accelerated job creation following the period of “jobless” economic growth.     

Public housing and the American dream: Residents’ views on buying into “the projects”

Abstract

This article examines residents’ attitudes toward homeownership in five large inner‐city public housing projects composed of multifamily apartment buildings. Based on 267 interviews with public housing residents in Boston, it contrasts their broad support for homeownership as a concept with their wholly mixed reaction to the idea of owning a public housing apartment. Interest in homeownership in public housing is shown to be independent of residents’ current employment status and closely tied to residents’ social investment in specific housing developments and to their perceptions about the quality of that development's management, maintenance, and security.

The findings cast renewed doubt on policies that would make public housing sales a centerpiece of national policy, but they provide qualified support for more modest efforts to increase homeownership in public housing developments and in low‐income neighborhoods around them.     

The inversion of the ‘really big trade-off’: homeownership and pensions in long-run perspective

Abstract

The hypothesis of a trade-off between homeownership and welfare state provision, first proposed by Jim Kemeny around 1980, is a foundational claim in the political economy of housing. However, the evidence for this hypothesis is unclear at both macro and micro levels. This paper examines the link between welfare and homeownership at the macro level using new long-run data and a multilevel modelling approach. It shows that the negative cross-sectional correlation between homeownership and public welfare provision observed in the earliest available data disappears and becomes neutral by the 1980s and possibly positive subsequently. Within-country trajectories vary, but are significantly positive in more countries than significantly negative, suggesting that in some contexts welfare and homeownership are complements rather than competitors. The paper posits a dual ratchet effect mechanism in both pension benefits and homeownership capable of producing this inversion, and further suggests that rising public indebtedness and the debt-stabilising effects of welfare states may account for the emergence of complementarity in the pension?homeownership relationship. The latter supports the hypothesis that some countries have avoided the trade-off by ‘buying time’ on credit markets.     

Understanding the neighborhood: From residents’ perceptions and needs to action

Abstract

Motivated by a renewed interest in homeownership, the U.S. Department of Housing and Urban Development developed techniques to study patterns of ownership. A baseline model is used to forecast homeownership in 2000 and then extended to illustrate how policy initiatives designed to overcome race‐and income‐based barriers to ownership could affect the national homeownership rate and the rates of ownership by specific subgroups. Another technique uses American Housing Survey data to estimate how these initiatives could affect household location and the choice of housing type.

This article clearly demonstrates that even limited success in reducing race‐and income‐based disparities will result in a significant increase in the national homeownership rate and dramatic increases for subgroups, such as minorities, young households, and low‐income households, that have low rates of homeownership. Thus, these techniques affirm the importance of focusing on access and affordability.     

Preventive servicing is good for business and affordable homeownership policy

Abstract

This article documents the growing importance of preventive servicing—business practices that emphasize early intervention in delinquency and default management practices that also help financially troubled borrowers avoid foreclosure. We suggest that the loan servicing side of the affordable housing delivery system may be underappreciated and undercapitalized.

We use a database of more than 28,000 affordable housing loans to test several preventive servicing‐related propositions and find that after we control for loan and borrower characteristics, the likelihood that a delinquent mortgagor within this universe will ultimately default varies significantly across servicers. This suggests that loan servicing is an important factor in determining whether low‐ and moderate‐income borrowers who fall behind in their mortgage payments will end up losing their homes through foreclosure. It also suggests a need for policy makers to incorporate preventive servicing into affordable homeownership programs.     

Discrimination in urban credit markets: What we don't know and why we don't know it

Abstract

Research on discrimination in housing credit has focused primarily on the outcomes of a complex process in which many parties play a role. The lender— or prospective lender—is only one party in the process that results in decisions by individuals and households to buy homes and finance their purchases. To focus solely on lenders would make it difficult to measure the nature and extent of discrimination and its effects on housing outcomes.

After discussing limitations of housing credit discrimination research, the author suggests two relatively underexplored areas: studying housing search behavior and auditing lenders to assess their treatment of prospective borrowers before the stage at which written loan applications are submitted. Both suggested avenues of research might better address three public policy questions for which our knowledge is incomplete: Is there discrimination? Where does it occur in the home‐buying process? What are the effects of discrimination on household behavior?     

Homeownership affordability series Clashing demographics: Homeownership and affordability dilemmas

Abstract

This paper examines the competing effects of the major demographic factors affecting homeownership affordability in the 1990s. It briefly views the transition in housing eras and then examines long‐term demographic fundamentals, which represent parameters that can be anticipated with reasonable certainty and that define the broad boundaries of future housing demand. The first section, on household segmentation‐diversification, focuses on changes in household configurations and future living‐arrangement choices. Income variations by age and household configuration are evaluated next, after which homeownership variations by age and household configuration are reviewed. Both the uncertainty of future household segmentation and clashing demographic variations in income levels and home‐ownership rates define future housing market complexity and uncertainty.

Following that is a summary of the key demographic parameters and dilemmas emanating from the preceding analyses. A final section then explores the net effect of these factors on various housing market segments for the balance of the decade.     

Shared‐equity mortgages,housing affordability,and homeownership

Abstract

Although the homeownership rate rose from 65 percent in 1995 to 69 percent in 2005, this rise appears difficult to sustain. We argue that the development of new shared‐equity mortgages (SEMs) that blur the lines between debt and equity would propel further advances in homeownership. The rationale for these mortgages is that the broad financial markets would value shares in individual housing returns more highly than hard‐pressed prospective homeowners do.

We describe a new class of SEMs and provide survey evidence that most households would prefer them to interest‐only and other currently popular mortgages. Financial simulations confirm the value of the securitized SEMs to investors. We present computations suggesting that an increase in the overall U.S. homeownership rate of between 1% and 1.5% would likely result from the development of SEM markets.     

The contributions of historic preservation to housing and economic development

Abstract

Historic preservation contributes greatly to housing and economic development. Historic preservation has produced almost 250,000 housing units through use of the federal historic rehabilitation tax credit. Additionally, heritage tourism is a multibillion‐dollar industry, and preservation projects help further community revitalization.

Historic preservation also has a downside. Preservation's growing popularity may dilute its imperative and market prowess, and some argue it is used to thwart new development. Preservation requirements may impede affordable housing production and displace area residents. These undesirable consequences are not givens, however. Preservationists are working to become more flexible, and we suggest ways to practice historic preservation while mitigating some of its negative consequences—for example, tax credit changes, more flexible building codes, and a “tiered” system of designating historic properties at varying levels of significance.     

Impacts of housing and mortgage market discrimination racial and ethnic disparities in homeownership

Abstract

There are persistent differences in homeownership rates across racial and ethnic groups. Homeownership rates for whites are over 20 percentage points higher than for blacks or Hispanics. This paper uses a model of the housing tenure decision to gain a better understanding of these racial and ethnic differentials in homeownership and employs a decomposition technique that has been applied to labor market discrimination to report the results of the empirical testing of two hypotheses: (1) race (ethnicity) influences the probability of ownership through differences in household endowments (income, education, age, gender, and family type) and market endowments (price and location); and (2) race (ethnicity) directly influences the probability of ownership through racial or ethnic discrimination and other factors that may be correlated with race or ethnicity.

We find endowment effects important in explaining the persistent racial and ethnic disparities in homeownership. In brief, logit analysis of 1989 American Housing Survey (AHS) national sample data reveals that 81 percent (78 percent) of the differences between the predicted probability of ownership between black and white households (Hispanic/non‐Hispanic) are due to differences in group endowments. Direct effects explain 19 percent of the black‐white differentials and 22 percent of the Hispanic/non‐Hispanic differentials. Because the direct effects are modeled as residual differences, it must be realized that the residual components could also be capturing the influence of important omitted or harder to measure variables internal to the market process and correlated with race or ethnicity. These include wealth, household location, employment history, credit history, and cultural predisposition toward homeownership.     

Comment on Kerry D. Vandell's “FHA restructuring proposals: Alternatives and implications”

Abstract

New Orleans, a highly segregated city with low homeownership, experienced a tremendous number of housing foreclosures between 1985 and 1990. This study highlights the process and impact of foreclosure in the urban housing market, which contributes to an understanding of their impact on the spatial structure of the city. Two aspects of foreclosure are examined: the differential impacts of foreclosure on low‐income and African‐American householders and changes in socioeconomic conditions (neighborhood change and the spatial structure of the city) resulting from foreclosure.

Conventional wisdom holds that urban neighborhood transformation is driven largely by white flight. The data presented in this article suggest a counterhypoth‐esis. Middle‐income professional whites employed in businesses impacted by recession who had recently bought housing with high loan‐to‐value ratios were forced to sell or have their houses foreclosed upon. The depressed market, in turn, made such housing affordable to middle‐class blacks interested in homeownership. Thus, black economic opportunity, rather than white flight, dramatically transformed the racial composition of many New Orleans East neighborhoods.     

The Effect of the 2014 Federal Housing Administration Loan Limit Reductions on Homeownership Decisions

ABSTRACT

Using data from the American Community Survey, this article assesses the effects of the 2014 Federal Housing Administration (FHA) loan limit reductions on homeownership decisions. Employing a difference-in-differences identification strategy, we find little evidence that the loan limit reductions caused an overall decline in homeownership rates. However, we do find that overall homeownership rates (as well as African American homeownership rates more specifically) increased in low-price parts of metropolitan statistical areas that experienced a loan limit reduction relative to high-price areas, suggesting that the lack of an overall effect may be because of changing decisions on where to own a home, not whether to own a home. This thesis is further supported by evidence of an increase in commuting times for residents in areas that experienced a limit reduction. Our findings contribute to the debate over how individuals respond and adapt their homeownership decisions to policy changes and credit constraints.     

“… And a suitable living environment”: The failure of housing programs to deliver on neighborhood quality

Abstract

This article evaluates the relative performance of housing programs in terms of neighborhood quality. We profile neighborhood characteristics surrounding assisted housing units and assess the direction of assisted housing policy in light of this information. The analysis relies on a housing census database we developed that identifies the type and census tract location of assisted housing units—that is, public housing, developments assisted under the Department of Housing and Urban Development, the Section 515 Rural Rental Housing Direct Loan Program, the low‐income housing tax credit, certificates and vouchers, and state rental assistance programs.

We conclude that project‐based assistance programs do little to improve the quality of recipients’ neighborhoods relative to those of welfare households and, in the case of public housing, appear to make things significantly worse. The certificate and voucher programs, however, appear to reduce the probability that families will live in the most economically and socially distressed areas.     

Does Homeownership Protect Individuals From Economic Hardship During Housing Busts?

ABSTRACT

Does homeownership protect individuals from experiencing economic hardships even during housing busts? Does the relationship differ by race and ethnicity? Using the Survey of Income and Program Participation 2008 panel in the United States and controlling for income and various family characteristics, we find that the likelihood of experiencing any hardship is 5.6 percentage points lower for homeowners than for renters without rent subsidies, a reduction of about 25%. Owning a home for more than 10 years provides more protection than owning a home for less than 4 years. Homeownership’s role in shielding people from economic hardship is significant not only for non-Hispanic whites, but also for non-Hispanic blacks and Hispanics. The negative relationship of homeownership to economic hardship offers additional evidence that it is beneficial to own your home, even during housing busts and even for households of color.     

Family self‐sufficiency and housing

Abstract

Since the early 1980s, an increasing number of initiatives have been introduced to link housing programs and policies with efforts designed to promote family economic self‐sufficiency. This article reviews a set of programs that have worked to manipulate various components of the housing bundle to improve the economic well‐being of acutely poor families. They include programs that modify the characteristics and services available in the local community, alter families’ residential location, provide incentives and opportunities for homeownership, and link the provision of housing subsidies to increasing local capacity for service delivery.

This article suggests that the centrality of housing in fostering or impeding economic mobility makes it a key element in dealing with acute poverty and part of a creative strategy for intervening in the dynamics of poverty. Several important areas need to be taken into account when evaluating current policy; and multiyear evaluations will be necessary to determine the success of these programs.     

Comment on Donald A. Krueckeberg's “The Lessons of John Locke or Hernando de Soto: What if Your Dreams Come True?”

Abstract

Krueckeberg's critique of de Soto's paean to homeownership in Third World countries is well taken; his use of John Locke's rationale for private ownership provides support for the critique. But then Krueckeberg puts forward a proposal to extend homeowner‐ship benefits through a National Homestead Trust, with Individual Development Accounts or a tax like Social Security, to help renters accumulate a down payment. Abandoning a broader approach, Krueckeberg reverts to supporting homeownership as a central tenet of U.S. housing policy and wants to extend its real and perceived benefits to low‐income households. He recognizes the shortcomings of U.S. property law and tax policy that may leave low‐income owners with threats to shelter security.

To provide security for low‐income residents, fundamental changes are required. Attention should be paid to protection from evictions and from foreclosure; income/employment support; guarantee of services from utilities to schools; and, as needed, direct subsidies for housing.     

Elderly interest in home equity conversion

Abstract

Few elderly homeowners liquidate their home equity to fund consumption. This article examines whether attitudes about housing, independence, and finances affect a homeowner's interest in home equity conversion. The results of a nationwide survey of elderly homeowners were analyzed by logistic regression to ascertain the relationship between interest in home equity conversion and economic, demographic, and attitudinal characteristics.

The results indicate that elderly homeowners most interested in home equity conversion own houses valued at $50,000 or less, are concerned about maintaining independence but not homeownership, and are not very concerned about future medical expenses. Thus, societal norms for maintaining single‐family homeownership and medical assistance programs that exempt home equity from requirements that participants spend all their assets to be eligible may be inhibiting the growth of home equity conversion programs.     

Estimation of housing needs amid population growth and change

Abstract

This article proposes a theoretical framework and more accurate methods for projecting the household growth component of estimates of housing needs. These estimates combine empirical evidence with normative assumptions about the quantity of housing expected with population growth. Recent California experience illustrates the theoretical and practical issues involved. Alternative empirical methods are used to model changes in per capita household formation and homeownership rates over time.

The results show great instability between 1960 and 2000 in the linkage between population and housing needs, casting doubt on which linkage to use for future projections. Past changes in housing growth are attributed to changing population composition and occupancy patterns for subgroups. Estimates based on a cohort method are lower than those using constant rates of housing consumption and conform much more closely to recent experience, but it may not be desirable to lock in the deficiencies of the past when projecting needs.     

Comment on Jean L. Cummings and Denise DiPasquale's “The Low‐Income Housing Tax Credit: An Analysis of the First Ten Years”

Abstract

The Low‐Income Housing Tax Credit (housing credit) that Cummings and Di‐Pasquale portray is effective, efficient, and healthy. However, rapid changes in the industry have turned some of their data stale, and the absence of suitable context and information invalidate some key analyses and findings. Moreover, the researchers sometimes seem to see the glass as 10 percent empty instead of 90 percent full. A practitioners’ perspective is more positive.

The housing credit generates an array of public benefits while harnessing private investors’ business discipline. Genuinely low‐income tenants occupy the housing. The housing revitalizes low‐income communities. Properties are in good financial and physical condition. The housing credit is also cost effective. The economic fundamentals of producing low‐income rental housing, not the housing credit, necessitate substantial subsidies. A remarkably high proportion of the federal tax‐credit subsidy goes into the housing, and investor returns are modest. Nonprofit‐sponsored production appears to cost more because nonprofits are prominent in high‐cost locations and for other similar reasons, not because nonprofit developers are inefficient.