A source of debate within U.S. housing policy is whether the federal government should favor policies that promote homeownership or policies that support renters. In the United States, homeownership and renting are targeted by our existing housing policies, but which area should be favored by policymakers? With a limited amount of federal funding available, policymakers must weigh the benefits and drawbacks of investing in homeownership or rental as they make policy.

Supporting Homeownership

Recent federal budgets have spent twice as much on programs supporting renters than those supporting homeownership. Policymakers have traditionally favored policies that build homeownership such as guaranteeing mortgage payments to lenders through the Federal Housing Administration and the mortgage interest deduction because owning a home is the main form of wealth building in the United States. Homeownership can help American families purchase property that is likely to steadily increase in value over time and that can be passed down to the next generation. The passing of wealth through generations gives future Americans a financial step up and creates upward economic mobility. Ideally, this generational cycling of wealth will give the future family the financial means to purchase their own home, invest in businesses, or use it to attend college. Owning a home does not only increase the wealth of the owner themselves, but also has long term economic impacts on society. Making homeownership more accessible to more people can improve the wealth of present and future households and benefit the U.S. government through increased tax revenue, a more educated population, and decreased use of social welfare programs.

Supporting homeownership policies also has short term economic benefits for other households seeking to purchase a home. The federal government runs two publicly owned enterprises called Freddie Mac and Fannie Mae that sell government assisted mortgages to private lenders and then reinvest the profit in federal housing programs. These programs actually turn a profit for the federal government who then uses that profit to support more Americans in purchasing a home. There is no comparable economic multiplier when it comes to programs supporting renters where the government can recover the money spent on renters.

Those in favor of prioritizing homeownership in housing policy also see these policies as a way to address the wealth gap in the United States between White and Black households. As Black households were often excluded from past government efforts to build homeownership, White households gained wealth over time while Black households did not have the same opportunity for economic mobility. Today in the United States, there is a 30 percent gap between the homeownership rate of White households and Black households. A gap of this size has not occurred in the U.S. since racial discrimination in housing was outlawed by the Fair Housing Act of 1968. Government investment in policies that increase the homeownership rate, especially the homeownership rate in communities of color, can build generational wealth in communities that were historically excluded from government support in wealth building through homeownership. Given that homeownership is the main form of wealth building for most Americans, assisting Americans in achieving homeownership could be a policy choice for policymakers interested in wealth and income equity.

Supporting Renters

Proponents of increasing funding for federal policies that support renter households point to several economic trends that have made homeownership an unrealistic expectation for every American household. Median home prices increased 121 percent nationwide since 1960, but the median household income only increased by 29 percent. Owning a home is no longer affordable for many American households as they simply do not have the income to support a down payment, monthly mortgage payments, and home repairs. The Millennial generation of Americans are 8 percent less likely to own homes compared to other generations at the same age. The generation that is at the prime age of entering homeownership is instead staying in the rental market because of cost, decreasing the U.S. homeownership rate for the first time in decades. The lackluster growth in household income has kept millions of households in the rental market. Investing in policies targeting renters can support households that do not have the economic opportunity to own a home as that trend becomes more common. Policies targeting homeownership would eat up money as homes become more expensive, making rental-based policies seem more reasonable to policymakers.

Renters are more likely to be low income households, while homeowners are more likely to be middle or high income. Many feel that government programs should prefer aiding low income Americans to middle or high. In 2019, the median household income for households that owned their homes was around $84,000, whereas the median household income for households that were renting was around $46,000. Equity advocates also point to the fact that renting households are disproportionately households of color. These are households who may have not had access to generational wealth to own a home in the first place and they rent because it is their only option. Without generational wealth to support a down payment, additional investment, or higher education to earn a higher income, many renter households will not be able to transition to homeownership without significant financial aid. In the short term, it would be more equitable to subsidize their rent than try to entice them with current homeownership programs that still require participants to be able to put up a down payment on their own and mortgage payments without a subsidy that accounts for their low-income. Investment in renter-focused policies will help low-income households and households of color secure quality affordable housing rather than give subsidies to high income households.

Moreover, renting can still provide families with safe, quality, affordable housing while being realistic about the hidden costs of homeownership. Also, even if the federal government helps low-income Americans access mortgage loans with better terms that fit their income, there is no government intervention for necessary repairs, which are more likely to happen to homes priced in the range of what a low-income household could afford, and improvement costs to maintain the home’s value. Even if a low-income household becomes able to purchase a home, that home will most likely not build as much equity as a home owned by a high income household, repeating the cycle of poverty as low income homeowners do not recoup their investments and deal with hidden costs of homeownership. 

In addition to inequities in homeownership in terms of income access, there are also large racial inequities in the valuation of homes owned by Black households. For Black households that do purchase a home, they can also face a smaller appreciation of home value because of how homes are appraised. Homes in majority-Black neighborhoods were valued on average $48,000, or 23% less than those with few or no Black residents, even when controlling for differences in schools, crime, and other neighborhood characteristics. In some cases, low income and/or Black households will be able to purchase a home, but they still may not reap the benefits of homeownership that homeownership policies are intended to create. They are less likely to build generational wealth through homeownership compared to white and/or high-income households, and so, the federal government should instead be more realistic about homeownership as a panacea to all housing and income inequality issues in the United States. Supporting renters acknowledges the reality of the U.S. housing market and existing inequities in homeownership while still helping Americans attain quality, affordable, and stable housing.

Questions to Consider:

• Currently, there is limited funding appropriated for housing policy. Should the federal government focus on increasing access to homeownership or supporting renter households? Which is a better use of federal money?
• Which policies seem more realistic given past and current trends in housing?
• Which policies are more equitable and will help address existing disparities in the United States?
• Which policies would be more politically popular and thus more likely to receive support from policymakers?