Setting The Record Straight on Affordable Housing

Since Michael Sherraden’s groundbreaking book Assets and the Poor: A New American Welfare Policy, discussion around welfare policy has shifted from income and consumption to the promotion of savings and wealth generation. Sherraden advanced the use of individual development accounts (IDAs) and argued that IDAs should enable homeownership as a path towards economic mobility.

In the paper “Setting the Record Straight on Affordable Homeownership,” Allison Freeman and Janneke Ratcliffe argue that affordable, sustainable homeownership is one of the best ways to help lower income households build long- term wealth. A home has the added benefit of being a consumption good. Freeman and Ratcliffe say, “Essentially a home provides its owner with a place to live while simultaneously forcing the owner to save, and hopefully build wealth, through principal reduction and equity accumulation.”

However, the recent foreclosure crisis has caused some to question if homeownership had been pushed too far and made available to too many families. While proponents of homeownership acknowledge that it is not appropriate for everyone, it has been a successful route to economic security for working families who are asset poor.

The University of North Carolina’s Center for Community Capital conducted a study in which they tracked borrowers who participated in the Community Advantage Program (CAP), which includes a portfolio of over 46,000 home- purchase mortgages made to lower- income households. Using data from this study, Freeman and Ratcliffe refute five theories that have arisen since the foreclosure crisis.

The theories are:

1. Homeownership is not a reliable wealth building strategy for lower- income families
2. Homeownership crowds out other investments for lower- income borrowers.
3. Lower- income borrowers erode their equity through excessive borrowing.
4. Renting is a more affordable option for lower- income individuals.
5. Homeownership should be restricted to those who can afford a 20% down payment.

Next week, we will run a blog series in which each day of the week we share information to refute each of these theories. Be sure to check back each day to learn more about how homeownership helps low- income families achieve economic stability and why New Century IDA is so passionate about helping low- to moderate- income families become homeowners!