Programs that help low-income and minority individuals and families purchase a home may be doing more harm than good, according to a Kansas State University economist.
When vulnerable homeowners don’t get support after they purchase a home — maybe one they really couldn’t afford in the first place — they’re more likely to return to renting, said Tracy Turner, K-State assistant professor of economics. She and Marc Smith, professor of finance and director for the Institute of Housing Studies at DePaul University, are publishing their research in a forthcoming issue of the Journal of Regional Science.
“Moving vulnerable renters into home ownership without post-purchase support wastes tax dollars as well as creates great hardships for these new homeowners who lose their homes,” Turner said.Turner and Smith studied how populations with low home ownership rates also leave home ownership at high rates, either through foreclosure or selling the home. From 1970 to 2005, they found that low-income homeowners were consistently more likely to exit home ownership than higher income households. Hispanic households had higher exit rates before 1997 but not after.
They also found that a gap between blacks and whites exiting home ownership arose after 1997. Turner said this could be because policies in the 1990s that encouraged minority home ownership were not sustainable in the long term.
“Policy initiatives made resources available to move renters into owning although they could not own without assistance, and these initiatives failed to provide post-home ownership counseling or support,” Turner said.
Turner said their research is the first to find that the home ownership gap before 1997 is because fewer blacks were becoming homeowners in the first place, not because they were leaving home ownership at higher rates.
Because home ownership offers many benefits, Turner said it is important to understand why black, Hispanic and low-income households are less likely to own their housing. As renters, they are missing out on the benefits home ownership can provide.
An important area of future research, Turner said, would be to look at how much of the foreclosure crisis is attributed to these types of policies versus how much of it is because of liberalized lending standards, predatory lending and house-price declines.