Virtues of a home of their own

Repeatedly over the past year, America's housing boom has achieved one milestone after another. Record sales, record prices, and record lending.

Yet for society as a whole, those are only building blocks for the weightiest achievement of all: the greatest rate of home ownership the nation has ever seen.

Politics, economics, and individual values have all seemingly coalesced into a grand ethos that buying is better than renting. As a result, through the first six months of this year, nearly 67 percent of US households were sheltered in property they owned.

And while prospective homeowners are keeping a watchful eye on the Fed this week for a possible hike in interest rates, demographic trends suggest homeownership will probably keep rising.

Still, aside from not feeling guilty about putting holes in the wall, is ownership something Americans, individually and collectively, should celebrate?

By and large, recent research answers "yes." Homeownership brings impressive benefits to families and their communities in everything from children's educational performance to adults' inclination to vote.

At the same time though, knowledge lags behind policy when it comes to the American dream. Indeed, a range of housing experts caution that there are risks and side effects to the nation's rush to ownership that deserve greater consideration than they've gotten.

"Homeownership has tremendous benefits, but the benefits need to be qualified, and we need to be cautious in encouraging ever more ownership," says William Rohe, director of the Center for Urban and Regional Studies at the University of North Carolina, Chapel Hill. Financial risk and unintended consequences for some individuals are the underbelly of an otherwise positive trend, he says.

Whatever the research may show, owning a home has been fully embraced in the nation's political rhetoric and increasingly, in its policies. Part of it is simply an effort to correct past wrongs, like redlining that excluded poor communities from mortgages. The homeownership rates of African-Americans and Hispanics have risen smartly in the 1990s, though they remain well below that for whites.

But the advocacy of ownership goes beyond erasing old restrictions. Today, a broad range of favorable government policies and an array of mortgage products put ownership within the reach of more people than in the past.

Under President Clinton, the Department of Housing and Urban Development, for instance, has given homeownership a higher priority than previous administrations, according to Michael Carliner of the National Association of Home Builders.

Franklin Raines, chairman of the federally chartered FannieMae, one of the nation's most aggressive proponents of spreading homeownership, captured the emerging ethos in a speech last year. "Homeownership is now being seen as not simply being a product of an individual's own desire and only benefits that individual. It is clearly seen as part of an entire community-building strategy," he said.

The current push notwithstanding, Mr. Carliner, who has studied the evolution of the nation's housing policy, concludes that the US has arrived at this high watermark somewhat accidentally. "Although there is a widespread perception that federal government policy was established to encourage, or at least facilitate, homeownership, most programs that support ownership have been developed for other purposes," he noted in a recent report.

Through expansion and recession, Washington has tinkered with the tax code and other regulations to deal with those economic cycles. Yet what's remained standing works nicely as an ersatz policy promoting ownership.

Home mortgage interest and property taxes are deductible, while interest on credit-card debt was eliminated in 1986. Substantial capital gains on a home sale can be avoided, though incentives to invest in rental housing have been eliminated from the tax code. And the government has developed an array of programs to subsidize or encourage minorities, people of low income, and other unconventional buyers to own a home.

Add plentiful jobs, low inflation, rising wages, and low interest rates to those incentives and you have the ingredients of today's powerful ownership expansion.

Though it is too soon to quantify the broad repercussions of high ownership rates, recent research suggests they are considerable. Donald Haurin of Ohio State University recently completed a study using national data and controlling for social, economic, and demographic variables. He found major advantages for the children of homeowners.

Specifically, Mr. Haurin's study, which surveyed 1,000 households over four years, found that the home environment tended to be more supportive for children when it was owned, rather than rented. As a result, children scored higher in reading and math achievement and had fewer behavioral problems.

A separate, earlier study found that teenagers growing up in owned homes tended to stay in school longer and that there were fewer teen pregnancies in households that owned their home.

Based on his own research, Haurin concludes the impact of ownership is "large and suggests higher educational attainment, greater future earnings, and a reduced tendency to engage in deviant behavior."

WHY? "Homeowners are more stable, and education literature shows people do better in a stable home environment," Haurin says.

The benefits ripple outward to the community, as well. Homeowners are more likely to vote, know the identity of their school board head, and be members of nonprofessional organizations. In short, they're more likely to work to solve local problems, according to Harvard economist Ed Glaeser.

The obvious logic behind these results is that owners have made large investments and have a stake in the community that may be broader than a renter. They are also apt to stay longer. While nearly one-third of renters relocate each year, the typical homeowner stays put for two to three years.

But that lack of mobility, often by choice but sometimes because moving sooner means taking a loss, worries some housing analysts. Encouraging homeownership in poor areas may be good for the neighborhood, but new owners may find that even as their incomes rise, they are essentially blocked from moving to better areas if their homes haven't gained in value.

University of North Carolina's Rohe says surveys of new homeowners in central Baltimore, for instance, found ownership had not done much for people's sense of pride or satisfaction when their community was still run down.

The other factor that worries many analysts is the prospect of economic downturn and what that might do to many new homeowners who have come into the system with few assets, low incomes, and jobs that could be shaky in a recession.

Another concern about homeownership is that it's likely a "contributing factor" in suburban sprawl, says Eric Belsky at Harvard's Joint Center for Housing Studies. Because owners prefer single-family homes, which tend to be lower-density developments than multi-family construction, greater ownership rates tend to increase sprawl.

In the end, though, policies favoring ownership, whether deliberate or not, may have less to do with the future than population dynamics and the well-established cultural ideal of owning a home.

Says Mr. Belsky, "demographics should keep home ownership on the rise for the next 10 years or so."

(c) Copyright 1999. The Christian Science Publishing Society