Unlike other countries, the “American Dream” ideology held by its citizens disproportionally values owning a home over renting. This idea also takes precedence over raising a family, getting a college degree, or having a career.
Owning a home does come with many benefits according to a new blog post from the Urban Institute [1] including a sense of belonging to a community, tax breaks, more opportunities to build credit, and a predictable and stable monthly payment that builds wealth.
But homeseekers have been experiencing anxiety over owning a home recently as the goal line seemingly moves everyday due to insufficient housing supply, rising prices, and tightening credit requirements. This inaccessibility fuels greater economic inequality between homeowners and renters, as well as inequalities that have long existed in the housing finance system because of structural racism.
As July is National Home Ownership Month, the Urban Institute is reconsidering just how achievable the American dream is in today’s market. What if, instead, the American dream looked like efforts to expand access to homeownership while enhancing housing sustainability and financial prosperity for renters so they, too, can dream under their roofs?
According to Recent Data from Black Knight’s Home Price Index, the average seasonally adjusted national home price increased nearly 80% between April 2015 and April 2023. In this case, homeowners gained a significant amount of wealth while renters, of course, were left out to dry.
Owning a home also provided unique financial benefits such as mortgage interest rate deductions during tax season, 30-year fixed-rate mortgages protect borrowers from macroeconomic shocks and problems, and the ability to refinance without a penalty, which can help borrowers in times of low interest rates as many did during the pandemic.
The financial gains from US homeownership are generally not based on an individual’s efforts but often arise simply from having enough resources to access homeownership in the first place, which is often a result of intergenerational advantage. Moreover, the benefits of homeownership in the US are largely driven by the way it is financed, which is heavily reliant on government-backed systems to function.
The Urban Institute also wrote about some ways and strategies to institute to break down systemic barriers to homeownership:
- Expand access to credit. To address inequitable access to credit, policymakers could consider giving lending institutions incentives to take on marginally greater borrower risk to safely expand credit access and to rethink how to measure creditworthiness by including alternative data, like rental and utility payment histories, to expand access to mortgage credit for historically excluded households and communities.
- Improve hybrid ownership options. Models beyond the single-family home mortgaged to one household, like housing cooperatives and community land trusts, could offer additional paths to ownership, help maintain neighborhood affordability, and provide an improved wealth-building opportunity relative to renting.
- Increase the supply of affordable housing. A combination of supply-side interventions to encourage high-density construction, providing incentives for production of low-cost units, and improving financing for home preservation and renovation can help meet the demand for housing.
Additional strategies can improve renters’ ability to weather economic shocks and build wealth:
- Expand and improve subsidized rental housing. Only one in four households who qualifies for rental assistance receives it. Increasing funding and expanding the scope of the Housing Choice Voucher Program could make rent more affordable for millions of Americans. Subsidizing the supply side of housing like other governments (PDF) do could improve production of safe and sustainable public housing units. Federal policymakers could also consider expanding eligibility for public housing if combined with a substantial expansion in unit production.
- Increase transparency regarding rental property ownership. On a local level, understanding who owns rental stock can address power imbalances between landlords and tenants and improve policy targeting.
- Continue emergency rental assistance and eviction protections that helped keep renters in place during the pandemic and stave off evictions, despite the increased financial shocks.
- Codify rental protections. Generally, homeowners enjoy clear legal and consumer protections, while renters need to navigate complicated patchworks of state and local laws and legal processes. Strengthening federal protections for renters (PDF) with policies including right to counsel and just cause eviction, in combination with local laws that regulate tenancy like the right to pay the full past-due rent after court judgement in eviction cases, could narrow this gap. Instituting consumer protections for renters such as limits on application fees and eviction record sealing could also ease renters’ financial burdens.
Click here [2] to view the blog post in its entirety.