The Benefits of Homeownership -- It's Not Just About the Money

by NAR Research Staff

Research has consistently shown the importance of the housing market to the economy and the long-term financial benefits of homeownership to individual homeowners. These are immense and well documented. In 2005, the housing sector directly accounted for 16 percent of total economic activity. Household real estate holdings totaled $20.7 trillion in the third quarter of 2005. The median net worth of a renter was $4,000 in 2004 (latest data available) compared with $184,400 for homeowners.

But there are other, non-tangible benefits to owning a home. Indeed, homeownership is said to bring substantial social benefits for families, communities, and the country as a whole. Because of these societal benefits, the leaders of Western democratic countries have frequently designed housing policies to promote homeownership. NAR Research examined if and how homeownership actually does bring about positive social outcomes. It also looked at the impact of stable housing (as opposed to transitory housing and homelessness) on social outcomes.

Following are some excerpts from the report on that analysis.

Stable Housing and Mobility
Homeowners have a much greater financial stake in their neighborhoods than do renters. With the median national home price in 2005 at $209,000, even a 5 percent decline in home values will translate into a loss of more than $10,000 for a typical homeowner. Because owners tend to remain in their homes longer, owners add a degree of stability to their neighborhood.

Homeownership and stable housing go hand-in-hand. Homeowners move far less frequently than renters, and hence are embedded into the same neighborhood and community for a longer period. While 7.4 percent of owner-occupied residents moved from 2002 to 2003, nearly one-third of renters changed residential location. The key reason for the higher “mover rate” among renters is the fact that renters are younger – that is, changing and searching for ideal jobs, not yet married, and hence, literally, less committed. The mover rate or percentage of people changing residence, among 20-to-24 year-olds was 30.1 percent, and for 25-to-29 year-olds it was 28.1 percent. The mover rate then declines rapidly from 19.8 percent for those in their early 30s to less than 5 percent for those at the retirement age of 65.

Just because renters are five times more likely than homeowners to move, does not mean that the renters are moving because of their tenure status. High renter mobility could be a result of renters being young and not married. The Census Bureau found that homeownership does have a statistically significant impact of lowering the mover rate. That is, among people of the same age, same income and same marital status, a person was significantly more likely to change residence in a given year if he or she was a renter rather than a homeowner. This can have an impact on communities, as renters bring less residential stability.

Homeowners, on the other hand, bring stability to neighborhoods. Many sociology studies have found that residential stability strengthens social ties with neighbors.¹ The purported benefits of homeownership may partly arise not directly from the ownership, but from this greater housing stability and social ties associated with less frequent movements among homeowners. Therefore, policies to boost homeownership can raise positive social outcomes, but only to the extent that homeownership brings housing stability.

Educational Achievement and Children’s Success
Consistent findings are that homeownership does make a significant positive impact on educational achievement. What is less clear, however, is whether homeownership in itself, stable housing (less frequent residential change) or favorable neighborhood characteristics are the main underlying contributing factors for better educational outcomes. One study found that homeowners have a significant effect on their children’s success. The decision to stay in school by teenage students is more prevalent for those raised by homeowning parents compared to those in renter households.² The same study points to certain behaviors of homeowners that are passed on to their children. A home purchase involves one of the largest financial commitments a household makes. Homeowners, therefore, tend to minimize bad behavior by their children and those of their neighbors that can negatively impact the value of homes in their neighborhood. Also, homeowners take on greater responsibility, such as home maintenance and acquiring the financial skills to handle mortgage payments. These life management skills may get transferred to their children.

The neighborhood stability that arises from homeownership also contributes to educational attainment. A recent study by the New York Federal Reserve Bank³ found that, though homeownership raises educational outcomes for children, neighborhood stability further enhanced the positive outcome. Additional research showed that changing schools negatively impacts children’s educational outcomes particularly for minorities and low-income families.⁴

Civic Participation
While the extent of community involvement and the benefits that accrue to society are hard to measure, several studies have found that homeowners tend to be more involved in their communities than renters.⁵ For example, homeowners were found to be more politically active than renters are. Homeowners participate in elections much more frequently than do renters.

One report found that 77 percent of homeowners said they had at some point voted in local elections compared with 52 percent of renters.6 This same study also found a greater awareness of the political process among homeowners. About 38 percent of homeowners knew the name of their local school board representative, compared with only 20 percent of renters. The study also found a higher incidence of membership in voluntary organizations and church attendance among homeowners.

Stable Housing and Crime
Because of their investment in their home, homeowners have a lot more to lose financial than do renters. Property crimes directly result in financial losses to the victims. Furthermore, violent, non-property crimes can impact the property values of a whole neighborhood. Homeowners have more incentive to deter crime by forming and implementing voluntary crime prevention programs.

Research on crime and homeownership shows that homeowners are far less likely to become crime victims. A study of both property and violent crime in New York City suburbs found that homeowners encountered significantly lower crime rates even after controlling for other socioeconomic variables.⁷ Having a stable neighborhood (regardless of the number of resident homeowners) is also likely to reduce crime. It is easier to recognize a perpetrator of crime in a stable neighborhood with extensive social ties.

Stable Housing and Public Assistance
There is vast array of research on the link between teen pregnancy and the likelihood of receiving public assistance.⁸ To the extent that homeownership and stable housing contribute to a lower incidence of teenage pregnancy, one can expect a reduction in the incidence of public assistance among those living in stable housing in a stable neighborhood. One analysis examined the direct link between homeownership and the likelihood of being on welfare.⁹ It found that homeownership significantly reduces the use of public assistance (after controlling for usual socioeconomic factors).Additional research showed that homeowners are better able to adjust after being laid off from a job due to their access to home equity credit lines, and hence, lessening their need for public assistance.¹⁰

Conclusion
Homeownership brings many financial benefits. It is one of the surest paths to wealth accumulation. But in addition, there is a host of compelling evidence of the benefits accruing to families, communities and society as a whole. Stable housing, which is another by-product of high levels of homeownership, boosts the educational performance of children, induces higher participation in civic activity, contributes to lower crime rates, and lessens welfare dependency. Research supports the view that homeownership and stable housing bring these and other social benefits. Because of these positive “ripple” effects of homeownership, ongoing government assistance and subsidies for the housing industry are well justified.

View and download the complete report:
Social Benefits of Homeownership and Stable Housing

References
1 Warner, B and P. Roundtree, 1997,“Local social ties on a community and crime model: questioning the systematic nature of informal social control,” Social Problems 44: pp. 521-536.

2 Green, Richard K. and Michelle J. White, 1997, “Measuring the Benefits of Homeowning: Effects on Children,” Journal of Urban Economics 41(3): 441-461.

3 Harkness, J. and S. Newman, “Effects of Homeownership on Children: The Role of Neighborhood Characteristics and Family Income,” FRBNY Economic Policy Review, June 2003.

4 Hanushek, E., J. Kain, S. Rivkin, “The Cost of Switching Schools,” Working Paper, University of Texas, 1999.

5 Cox, K., 1982. “Housing Tenure and Neighborhood Activism,” Urban Affairs Quarterly 18,
pp. 107-129.

6 DiPasquale, D and E. Glaeser, 1998, “Incentives and Social Capital: Are Homeowners Better
Citizens?” Journal of Urban Economics 45, 354-384.

7 Alba, R., J. Logan, P. Bellair, 1984, “Living with Crime: The Implications of Racial/Ethnic Differences in Suburban Location,” Social Forces 73: pp. 395-434.

8 Sawhill, I., 1998. “Teen Pregnancy Prevention,” Brookings Institution Policy Brief #38.

9 Harkness and Newman, op. cit.

10 Page-Adams, D., and N. Vosler, 1997. Homeownership and Well-Being Among Blue-Collar Workers, Washington University School of Social Work.