Setting the Record Straight: Part 2

This is the second blog in a series in which we refute common misconceptions about homeownership.


Theory 2: Homeownership crowds out other investments, while renting allows households to diversify their investments.

There is speculation that homeownership leaves some households with under-diversified and, therefore, riskier portfolios. If this is true, it would be particularly concerning for lower- income households who invest a greater portion of their net worth in housing.

Allison Freeman and Janneke Ratcliffe from UNC’s Center for Community Capital put this theory to the test. They used data from homeowners that participated in the Community Advantage Program (CAP) to determine whether or not they restricted their investments in other financial instruments as a result of having their investment concentrated in their home.

They found that when renters were given the same equity amounts as a matched set of homeowners in 2008, the simulated effect on their investment portfolios was a shift of less than one cent. They found no evidence that investments or savings suffer from having funds tied up in homeownership. Freeman and Ratcliffe concluded that affordable homeownership, “serves as an effective means for promoting stable wealth- building for low to moderate income households through the forced- savings mechanism of equity accumulation.”

For more information on this study from the UNC Center for Community Capital, click here.

This home was purchased by a New Century IDA graduate in 2007.