homeownership is still central to the hopes

 Despite the worst housing crisis since the Great Depression, homeownership is still central to
the hopes and aspirations of many Americans. Recent polls show that the American public
places very high importance on owning a home1 and that homeownership is more closely associated
with living the American Dream than are graduating from college, becoming wealthy, or securing a
comfortable retirement. Four out of five Americans believe that buying a home is a better financial
decision than renting one (Allstate/National Journal, 2011). This steadfast belief in the importance
of homeownership, 

despite the recent collapse of home values, reflects America’s deeply-held
conviction that owning a home bestows more financial and non-financial benefits than any
other single asset.
The Value of Homeownership
Financial Benefits. Owning a home has long been the most accessible way to build wealth in the
United States. Although not without financial risks, homeownership provides the opportunity to
build equity through two separate mechanisms.
First, over the long term, housing prices tend to appreciate. Nominal home values have increased,
on average, about 5.5% annually between 1977 and 2011.2 Although adjusting for inflation lowers
the real price appreciation to 0.5-1.5% per year,3 homeowners realize returns on the entire value of
the home, not just their initial down payment. Consequently, their overall rate of return is actually
higher than real-price appreciation rates would suggest.4
Second, because traditional mortgage products require borrowers to pay off a portion of the loan’s
principal balance each month, over time homeowners gradually reduce their debt and build equity.
Therefore, when such traditional mortgages are used, homeownership provides a “forced savings”
mechanism for households. 

This is particularly important because the actual savings rate in the
U.S. has been quite low in recent years.5 In addition, although the relative cost of owning a home
compared with renting depend on a host of factors (e.g., rental prices, prevailing interest rates, property taxes, homeowners’ insurance premiums, home maintenance costs, etc.), there are federal tax
deductions for mortgage interest, mortgage insurance, and property taxes. These tax deductions, as
well as the special treatment of capital gains for primary residences, provide considerable public
subsidies for homeownership that enhance its financial benefits (Dietz, 2009).

The wealth acquired through homeownership has been a key source of economic mobility and
financial security in this country for decades. Home equity can be tapped to start a new business,
pay for higher education, and secure retirement. In addition, home equity provides a financial
cushion against unexpected financial hardships, such as job loss, divorce, or medical expenses.
Perhaps the high value that Americans place on homeownership may be explained, at least in part,
by the country’s relatively low public subsidization for many of these expenses.
Nonfinancial Benefits. Homeownership also bestows a host of non-financial benefits on individuals
and families. Research suggests that children who grow up in home-owning households perform better
academically, are more likely to graduate from high school, and are less likely to become teen parents
(Dietz, 2003).
In addition, studies have shown homeowners to be happier (Dietz, 2003) and have higher levels of
satisfaction than similarly-situated renters (Rohe, Van Zandt, & McCarthy 2001).

 It is not known
exactly why homeowners are happier or more satisfied, but some potential reasons include greater
feelings of control, more desirable locations of owner-occupied properties, and the relatively limited
tenants’ rights in the U.S.6 (Immergluck, 2011).
External Benefits. The advantages of homeownership extend beyond the direct benefits to
homeowners. Neighborhoods with high homeownership rates tend to have higher property values
(Rohe & Stewart, 1996) and consequently higher levels of tax revenues. These resources can then
be used to support community assets that benefit all residents such as schools, parks and recreational
facilities, and public safety programs. The evidence also suggests that homeownership increases civic
engagement, since home owners are more likely to vote and volunteer in civic and philanthropic
activities (Rohe et al, 2001).

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