Socioeconomic and Racial Disparities in the Financial Returns to Homeownership

Abstract

In this study we utilize data from over a million ownership spells between 1990 and 2013 in 9 metropolitan areas - Boston, Chicago, Detroit, Los Angeles, Miami, New York, Pittsburgh, San Diego, and San Francisco - to provide what we believe to be the most extensive analysis of the variation in the financial returns to homeownership along racial and socioeconomic dimensions. Holding constant a buyer's purchase price, property type, neighborhood, and purchase and sale timing, we find that capital gains have been systematically lower - and the real cost of ownership has been systematically higher - for low-income and minority home buyers in every market in our sample. In some cases, the unconditional returns realized by these buyers were higher, a phenomenon driven by their higher propensity to purchase lower-priced homes that experienced high levels of appreciation. Taken as whole, our findings call into question the widespread claim that encouraging homeownership for low-income and minority households is a panacea for addressing wealth inequality.

Keywords: Homeownership, Housing Returns, Racial Inequality, Wealth

JEL Classification: D31, R3