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Owning a Home Doesn't Necessarily Benefit Families

23.05.2008
A new study by a University of Iowa business researcher casts doubt on long-held beliefs about the social benefits of home ownership as a way of strengthening families and improving the lives of children, and finds that a federal policy of encouraging home ownership helped lead to the current real estate crisis.

The American Dream of owning a home may not be that much of a benefit for kids and families after all, a new study by a University of Iowa researcher shows.

Home ownership has virtually no impact on several measures of child welfare, including high school graduation rates, behavior, and math and reading test scores, the study shows, contradicting earlier studies that claim a correlation.

"The federal government spends more than $100 billion a year on tax breaks and other subsidies encouraging home ownership, justifying the expense in part by referring to studies that show ownership has a beneficial effect on children," said David Barker, who teaches real estate and finance at the Tippie College of Business. "This study, though, shows that those benefits might not exist, and it suggests that the subsidies might not be good public policy."

The study, "Homeownership and Child Welfare," will be published in a forthcoming issue of Real Estate Journal. The article is co-authored by Barker, an adjunct professor in the Tippie College of Business, and Eric Miller, an economist with the Congressional Budget Office in Washington, D.C.

Barker used information from several sources, including a recently released U.S. Department of Education database called the Early Childhood Longitudinal Study, to test the hypothesis that home ownership has beneficial effects on children. Previous studies have suggested that, for instance, low-income children growing up in rented homes were 9 percent more likely to have dropped out of high school by age 17, scored 9 percent lower on standardized math tests and 7 percent lower on reading tests.

Barker's analysis, however, found that while such factors as family wealth, race, divorce, death of a parent, mobility, and even vehicle ownership showed effects on child welfare measurements, home ownership did not.

The reason, he said, is that previous studies did not fully account for family characteristics such as wealth as the possible causes of the family benefits. When he factored these characteristics into the equation, the positive effects of home ownership disappeared. Kids raised in rental houses and apartments, he found, are at no greater risk than kids raised in homes their families own.

His argument contradicts a general belief that home ownership is inherently good, a way of thinking that was behind the Bush Administration's push to create an "ownership society" earlier this decade. Americans were encouraged to take a greater sense of ownership in such things as retirement and health care, as well as owning their own homes, on the assumption it would strengthen communities and families and lead to more responsible behavior.

But Barker said one consequence of the push to increase home ownership rates was that some people who could not afford homes were encouraged to buy anyway, and lenders were encouraged to give them mortgages. That inflated a real estate bubble that, now burst, has forced millions of homeowners into foreclosure and is dragging down the economy.

The problem with the argument promoting an ownership society, he said, is that nobody considered what would happen if people owned more than they could afford.

"The last few months have shown that pushing home ownership can lead to serious systemic risks," he said.

He hopes the next Congress and presidential administration will reconsider policies advocating home ownership but realizes change will be difficult because many of the subsidies-such as the mortgage interest tax deduction-are hugely popular politically.

Barker became interested in the issue because he and his family own rental units in Iowa and he wanted to see if his tenants really had a disadvantage over families who lived in their own homes, as implied by arguments advocating the ownership society. His study showed that a child's wellbeing is more influenced by whether the child is raised in a responsible, stable, financially secure family than whether their home is owned or rented.

"Maybe it's not good public policy to urge people into home ownership if that's not what's right for them," Barker said. "Children raised in a rented home aren't necessarily at a disadvantage."

Tom Snee | newswise
Further information:
http://www.uiowa.edu

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