Housing Tenure &

Ownership Myths
Types of Housing Tenure
• Tenancy: a paid rent;
• owner occupancy: a house that he or she owns

• condominiums, apartments, to housing cooperatives.

• Condominiums - Ownership is assigned to an individual, but common areas

are controlled by the homeowners' association. Fees are charged to the
condo owners for maintenance of the common areas.

• Apartments - similar with condominiums, rented to individual tenants.

• Housing Cooperatives - Ownership is held in common by a homeowners'

association. Individuals occupy a particular apartment by mutual agreement
but do not hold exclusive ownership.
Types of Housing Tenure
• Public housing. Government-owned housing, whether provided
for free or leased at a subsidized rate.

• Squatting. Occupation by non-owner without permission by the

owner, if any.

• Timeshare. A modified form of cooperative, condominium, or

leased house or apartment, with short-term residency right
agreements tailored for vacations.

• Cohousing. A variant of a condominium or cooperative with a

high degree of interaction with neighbors in shared areas.
USA – Homeowners vs. Renters
Cost and Benefit of Home
Ownership
Is homeownership preferred by all
stakeholders? Why?
• Individuals?

• Developers?

• Government?
National Homeownership Strategy (1995) -
Claims
• Homeownership is a commitment to strengthening families and good
citizenship. Homeownership enables people to have greater control and
exercise more responsibility over their living environment.

• Homeownership is a commitment to community. Homeownership helps

stabilize neighborhoods and strengthen communities. It creates
important local and individual incentives for maintaining and improving
private property and public spaces.

• Homeownership is a commitment to personal financial security. Through

homeownership a family acquires a place to live and raise children and
invests in an asset that can grow in value and provide the capital needed
to start a small business, finance college tuition, and generate financial
security for retirement.
Questions
• What evidence is there for these claims?
• Are they based on conventional wisdom or sound
empirical research?
• How about the costs of homeownership?
• Is there a downside that is ignored in the rush to
support homeownership?
Impact of Home Ownership
• The Individual –
social impact: life and residential satisfaction;
economic impact: housing quality, housing cost,
portfolio wealth, housing as an investment, and
access to credit
• The Community –
social impact: neighborhood stability, civic
participation and youth behavior;
economic impact: housing price appreciation and
job mobility
Social impacts on individuals –
Homeownership & Satisfaction
Theory –
• Buying a home achieves a major life goal.
• Homeowners find satisfaction in both maintaining and
improving their homes. (Public housing in China)
• Greater wealth associated with ownership increases
satisfaction.
Evidence –
• Most research indicates that buying a home does lead to
greater life and residential satisfaction.
• The reasons for the effect are unclear.
• Different types of ownership may lead to
differing levels of satisfaction.
Social impacts on individuals –
Homeownership & Health
Theory –
• The social status and personal freedom associated with
homeownership lead to higher levels of self-esteem and perceived
control over life.
• Homeowners have additional assets that can be used to pay for
improved health care.
• Compared to renters, homeowners have additional security of
tenure, which may result in a less stressful life.
Evidence –
• Available research is methodologically weak
and/or inconclusive.
• Little is known about the impact of mortgage
default on psychological outcomes.
• Lower-income or less successful homeowners
may suffer from greater stress.
Social impacts on community –
HO & Neighborhood Stability
Theory –
• Homeowners tend to be higher-income, family households with
older, more educated household heads who anticipate staying in a
home for a longer period of time.
• Owners have a greater economic interest in maintaining their
homes and environments.
• Decreased mobility may trap owners in undesirable or deteriorating
neighborhoods.
Evidence –
• Higher rates of ownership lead to an increase in property values.
• Lower homeownership rates are associated with an increase in
social problems, including unemployment and poverty rates.
• Low-income, black, female-headed and older households are less
likely to move out of distressed neighborhoods if they are home
owners.
Social impacts on community –
HO & Civic Involvement
Theory –
• Higher rates of ownership lead to an increase in property values.
• Owners see civic involvement as a means of protecting their
investment.
• Owners have stronger attachments to neighborhood and
community.
• Owners may discriminate against various social groups including
racial and ethnic minorities and renters.
Evidence –
• Evidence is strong and consistent that homeowners are more likely
to participate in voluntary organizations and engage in local
political activity.
• The relationship may be spurious i.e., people who are likely to buy
homes may be predisposed to be politically active.
Social impacts on community –
HO & Youth Behavior
Theory –
• Owner parents are more stable and thus provide a better
environment for emotional and cognitive development of
children.
• Homeowners create a neighborhood environment that is
better able to monitor children's behavior.
Evidence –
• Research does not take into account all alter-
native explanations, but Children of home-
owners are more likely to stay in school and
less likely to become parents as teenagers.
• Younger children of homeowners demonstrate
higher scores on reading and math tests.
Conclusions: Social
• Considerable evidence suggests that homeowners are more
likely -
i. To be satisfied with their homes and neighborhoods,
ii. To participate in voluntary and political activities, and
iii. To stay in their homes longer periods of time.

• Most studies do not adequately account for the self-selection

of households to owner and renter occupancy, making causal
attribution difficult.
• Very little research is available about the negative social
impacts of mortgage default or being trapped in deteriorating
neighborhoods.
Economic impacts on individuals –
HO & Housing Quality
Theory –
• Owners live in bigger units of higher quality and with more amenities.
Evidence –
• Owners enjoy an average of two more rooms and 600 more square feet
than renters.
• Owners are
i. twice as likely to have a separate living or dining room,
ii. three times as likely to have a working fireplace
iii. twice as likely to have a washer and dryer and
iv. twice as likely to have a garage or carport.
• Renters are
i. twice as likely to suffer from rodents holes in walls, ceilings and
floors wiring deficiencies and water leaks.
ii. three times more likely to live in crowded conditions more than
one person per room.
Economic impacts on individuals –
HO & Housing Costs
Conventional Wisdom
• Monthly housing costs are lower for renters than for homeowners.
Evidence –
• Owners pay less per square foot than do renters.
• Owners pay a lower percentage of their income for housing costs
than do renters.
• Housing costs-to-income ratios diminish over time, but these
savings may be eaten up with maintenance or transaction costs.
• Lower-income buyers are more likely to purchase older homes that
require more maintenance, thus may not experience the same
benefits as wealthier owners.
• Owners enjoy substantial tax benefits through the mortgage
interest deduction, but not all lower-income owners are able to
take advantage of it.
Federal Expenditures on income groups
Economic impacts on individuals –
HO & Wealth Accumulation
Homeowners accumulate assets through homeownership in
two ways:

• Home owners reap the full return (or loss) associated with
house price appreciation.
• As their mortgage is amortized through repayment, a
household builds equity - the difference between the
value of the home and what is owed on it.
Economic impacts on individuals –
HO & Portfolio Wealth
Wisdom –
• The portfolio allocation literature recommends that no
more than nine percent of household wealth be housing
equity.

Evidence –
• Housing equity represents roughly 45 percent of the
average home owners net worth.
• Minority households have even higher percentages of net
worth in housing equity.
• As household wealth increases, the portfolio share of
housing decreases.
Economic impacts on individuals –
Housing as an Investment
Evidence –
• Housing carries less risk than the stock market but is
more subject to extreme events, which amplifies
relative risk.
• The return on housing is related to the amount that is
owed on a home. High leverage decreases the liquidity
of housing assets.
• Housing generally appreciates over time, but can vary
(sometimes dramatically) by region and neighborhood.
Economic impacts on individuals –
HO and access to Credit
Theory –
• Home owners have better access to both secured and
unsecured credit.
Evidence -
• Most Home Equity Loans are used to finance home
improvements or consumption.
• Increased use of credit increases the households debt
burden.
• Increased debt burden has been linked to long-term
foreclosure rates.
Economic impacts on community –
HO & House Price Appreciation
Theory –
• House prices are affected by the prices of nearby housing
(spatial correlation)
Evidence -
• Falling house prices are often linked to local or regional
recessions.
• More expensive homes have higher rates of price
appreciation during inflation-driven economic expansions
while lower-priced houses have higher appreciation rates
during employment- and income-driven expansions.
• Annual appreciation rates are far more volatile over time in
low-income and high minority tracts and price volatility
tends to follow macroeconomic swings.
Economic impacts on community –
HO & Job Mobility
Theory –
• Logical and regional economies use labor mobility to
adjust.
Evidence -
• Homeownership is a significant deterrent to job
mobility.
• The more highly-leveraged the household, the more
difficult it is to move.
• This decreased mobility exacerbates spatial mismatch
between workers and jobs as well as its concomitant
problems.
Conclusions: Economic
• Homeowners live in larger, higher quality dwellings.
• They enjoy a better stream of housing services, with costs
that usually fall over time, and stand to gain considerable
financial returns if they remain owners for a long period of
time.
• Strong evidence suggests that the average homeowner
accumulates a significant portion of wealth in the form of
housing equity.
• Wealthy homeowners also accumulate more non-housing
wealth than renters, suggesting that they save more.
Conclusions: Economic
Homeownership offers much better financial security for wealthy
owners than for low- and moderate-income and minority owners
because lower-income households:
• Accumulate lower than average non-housing savings.
• Hold more housing that is optimal in portfolio wealth, exposing
them to higher risk.
• Borrow more against their equity and more expensively than
higher-income households, eroding wealth accumulated through
house price appreciation.
• Have more volatile and generally lower price appreciation than in
middle- and upper-income tracts.
The Downside of Homeownership
•Those who buy homes in less desirable neighborhoods or in
housing markets that experience depreciation may not realize
the economic or the social benefits of homeownership.
•Some homeowners may desire to move, but find themselves
stuck in homes that they cannot sell.
•Homeowners may have difficulty keeping up with their
mortgage payments. Delinquency and default may lead to
long-term financial and emotional or physical problems.
Policy Implications
•Enough evidence exists for positive associations between
homeownership and social and economic outcomes to justify
public policies that support and encourage homeownership.
•Lower-income households may be susceptible to negative
impacts from home ownership, yet these are the very
households to whom homeownership promotion is targeted.
Caution should be exercised.