Unlike many other countries, the United States disproportionally values owning over renting, and homeownership is viewed as a critical piece of “the American dream.” In fact, the vast majority of Americans believe owning a home is a greater achievement than raising a family, getting a college degree, or having a career.
Homeownership comes with many benefits, such as an anchored community (PDF), tax breaks, enhanced opportunities to build credit, and stable monthly payments that help build wealth. But homeownership has become increasingly inaccessible because of an insufficient housing supply and tightening mortgage credit. 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.
This National Homeownership Month, we are 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?
US homeownership carries economic benefits
According to Black Knight’s Home Price Index, the average seasonally adjusted US home price increased nearly 80 percent from April 2015 to April 2023. Homeowners realized significant wealth increases while renters were left out.
Beyond home price appreciation, homeownership provides financial benefits that are unique to the United States. The mortgage interest deduction benefits taxpayers, especially those with higher incomes. Puttable and fixed 30-year fixed-rate mortgages have help keep monthly mortgage payments low and stable while buffering homeowners from macroeconomic shocks, like inflation and interest rate increases. And because most US homeowners can refinance without a penalty, they can lower their borrowing costs when interest rates drop, which is uncommon in other countries.
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. Urban Institute research found parental wealth and homeownership have significant and positive effects on homeownership among millennials. 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.
How do we square that fact with the American love for the bootstrap mentality, the idea that one succeeds solely as a result of their own hard work?
Opportunities to access homeownership are decreasing
Following the Great Recession, homeownership opportunities decreased because of a lack of supply and because of tight credit. Since then, new housing production has not kept up with demand, resulting in a steep increase in home prices, especially for homes in lower price tiers.
Data from the Decennial Census, the American Community Survey, and the US Department of Housing and Urban Development show that median-home-price-to-median-income ratios have gone up from 6.1 in 2000 to 8.5 in 2021, making homeownership access more challenging, even for those who earn moderate incomes. Low interest rates before the recent hike lowered borrowers’ monthly payments, but higher home prices have increased the size of the down payments required. Now, both high home prices and high interest rates are significantly worsening mortgage affordability (PDF). Meanwhile, renters are facing rising rents and evictions as homeownership pulls further away from reach.
These trends do not bode well for younger households, who have substantially lower homeownership rates than the prior generation; are more likely to live with their parents, relatives, or friends; and thus have fewer wealth-building opportunities. Nor do they bode well for households of color, who are expected to account for all net new household growth between 2020 and 2040 but still experience substantial barriers to homeownership that fuel the wide racial homeownership gap and limit wealth-building opportunities for younger generations.
A new vision for the American dream
The national homeownership rate is expected to decline over the next few decades, and a larger share of the population will be renters. The American dream can shift to match this reality.
Here are a few strategies 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.
Homeownership offers myriad benefits to those with the financial resources to achieve and sustain it. But current and projected housing trends suggest many Americans may never achieve homeownership or may have to rent for long periods before transitioning to it. This National Homeownership Month, what if we committed to increasing access to homeownership and improving the financial security of renting? If we don’t, homeownership gaps may continue to widen economic gaps.