Returns to Homeownership and Inequality: Evidence from the First-Time Homebuyer Tax Credit

Abstract

Homeownership is often promoted as a key to building wealth and a pathway to reducing wealth inequality across racial groups in the U.S. The prior two decades, however, saw a housing bubble form and burst with significant impacts on homeownership rates and returns, which varied by race. In this paper, we examine 1) how returns to homeownership differ by race using address-level microdata over this period, and 2) whether a policy defraying upfront costs among more liquidity constrained buyers, the 2008-10 First-time Homebuyer Tax Credit (FHTC), altered this broader dynamic. To answer these questions, we employ a unique national dataset linking internal American Community Survey (ACS) households to transactions from Zillow’s ZTRAX database for 2000-2016. Empirically, we exploit the FHTC setting using a difference-in-differences framework, finding that income-eligible homebuyers had substantially higher gross capital gains on their homes compared to ineligible households. While minority householders realized lower returns to housing over the broader boom-bust-recovery period, the FHTC results show eligible Black householders who purchased a home during the relevant policy period significantly outperformed White householders.

Keywords: inequality, housing, home prices, homeownership, wealth, race, wealth gap

JEL Classification: D31, G50, J15, R30, R38