Academic journal article Federal Reserve Bank of New York Economic Policy Review

Effects of Homeownership on Children: The Role of Neighborhood Characteristics and Family Income

Academic journal article Federal Reserve Bank of New York Economic Policy Review

Effects of Homeownership on Children: The Role of Neighborhood Characteristics and Family Income

Article excerpt


A recent press release from the U.S. Department of Housing and Urban Development (HUD) captures the wide-ranging benefits increasingly being attributed to homeownership: "Homeowners accumulate wealth as the investment in their homes grows, enjoy better living conditions, are often more involved in their communities, and have children who tend on average to do better in school and are less likely to become involved with crime. Communities benefit from real estate taxes homeowners pay, and from stable neighborhoods homeowners create" (U.S. Department of Housing and Urban Development 2000). This credo undergirds the last decade's push to extend homeownership to all Americans, particularly low-income families and racial minorities. Because it is believed to strengthen not only families but communities, homeownership is being promoted as an important strategy for regenerating distressed urban neighborhoods.

Enormous amounts of money, both public and private, are being invested in increasing the homeownership rate. From the $2 trillion "American Dream Commitment" of Fannie Mae, to the multimillion-dollar homeownership programs of the Enterprise Foundation, the Local Initiatives Support Corporation, and the Neighborhood Reinvestment Corporation, to the millions of dollars of programs and incentives under HUD's control, a consistent view of homeownership as a "silver bullet" has emerged. Incentives for homeownership even appear in the welfare reform plans of a number of states.

Despite this significant investment, there is remarkably little known about the real effects of homeownership on either homeowners, their children, or their communities. This paper focuses on one aspect of homeownership: its potential longterm effects on children. Several recent studies have found that growing up in a homeowning family exerts positive effects on children's development and outcomes (Green and White 1997; Aaronson 2000; Boehm and Schlottman 1999; Haurin, Parcel, and Haurin 2000). But what accounts for these positive effects, and whether other features may either strengthen or weaken them, is unclear. One such feature is the neighborhood. Since many families who will become new homeowners under current policies promoting homeownership for the poor will purchase homes in areas traditionally thought of as troubled or distressed, it is important to understand whether neighborhood characteristics play a role in the effects of homeownership on children's outcomes.

To our knowledge, only Aaronson (2000) has explored this link. He finds that parental homeownership in low-income census tracts has a more positive effect on high-school graduation than it does in high-income census tracts. This intriguing result suggests that homeownership may buffer children against the damaging effects of growing up in distressed neighborhoods. But Aaronson also finds that neighborhood residential stability enhances the positive effects of homeownership on high-school graduation, which suggests that at least some of the positive effects of homeownership found in other studies may be attributed to the greater residential stability of the neighborhoods where homeowners live.

Very different policy recommendations emerge from these two results. According to the first, homeownership should be promoted even-or especially-in very low-income neighborhoods. According to the second, neighborhoods that are residentially stable are preferred, and efforts to stabilize distressed neighborhoods by encouraging low-income families to purchase homes there may carry significant risks for the "pioneers," the first homeowners in a distressed area.

Another neighborhood feature that may play a role is the homeownership rate, which has largely been ignored in the sizable and growing body of research on the effects of distressed neighborhoods on the life chances of children (see reviews by Jencks and Mayer [1990], Haveman and Wolfe [1995], Gephart [1997], Ellen and Turner [1998], and Moffitt [2001 ]). …

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