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«Mixed Messages on Mixed incoMes Volume 15, Number 2 • 2013 U.S. Department of Housing and Urban Development | Office of Policy Development and ...»

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This conclusion raises some provocative questions about America’s institutional arrangements for renting. Other countries in the world, such as Germany, have much stronger tenant protections than the United States, which allows renters to be quasi-owners. Although this quasi-ownership has doubtless benefits to those who rent, it also discourages the market from supplying rental housing, thereby shutting some households out of the market. As such, it is not clear whether offering stronger generic tenant protections for renters would produce a net social benefit.

It is a little strange, however, that choices about the length of the lease seem to be so limited. Households seem to have the choice between the alpha of a 1-year lease and the omega of an infinite lease (that is, ownership). Given that children stay in school for 13 years, one wonders whether a 13-year lease might not be optimal for some households. We observe a very wide variety of leases in the commercial real estate market—office, retail, and industrial tenants frequently sign 1-, 3-, 5-, and 10-year leases.

Well-established literature provides evidence that residential stability is good for children (e.g., Adam 2004). In the U.S. context, ownership is the method by which parents can assure their children stability. Unless we change how real estate institutions in the United States work, homeownership will continue to play an important role in producing positive outcomes for children.

One final note—recent work by Gary Painter, Michelle White, Sarah Mawhorter, and Richard K.

Green suggests that those parents who buy homes without making a downpayment have children who behave like children of renters, while all parents who put anything down have children who behave like children of all other owners. This finding suggests that the act of saving—even a little bit—has some association with child outcomes.

Author Richard K. Green is the Director and Chair of the University of Southern California Lusk Center for Real Estate.

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References Adam, Emma K. 2004. “Beyond Quality Parental and Residential Stability and Children’s Adjustment,” Current Directions in Psychological Science 13 (5): 210–213.

Barker, David, and Eric Miller. 2009. “Homeownership and Child Welfare,” Real Estate Economics 37 (2): 279–303.

Dietz, Robert D., and Donald R. Haurin. 2003. “The Social and Private Micro-Level Consequences of Homeownership,” Journal of Urban Economics 54 (3): 401–450.

Green, Richard, Gary Painter, and Michelle White. 2012. Measuring the Benefits of Homeowning:

Effects on Children Redux. Research Institute for Housing America Research Paper 12-01. Washington, DC: Research Institute for Housing America.

Green, Richard K., and Michelle J. White. 1997. “Measuring the Benefits of Homeowning: Effects on Children,” Journal of Urban Economics 41 (3): 441–461.

Haurin, Donald R., Toby L. Parcel, and R. Jean Haurin. 2003. “Does Homeownership Affect Child Outcomes?” Real Estate Economics 30 (4): 635–666.

Holupka, Scott, and Sandra J. Newman. 2012. “The Effects of Homeownership on Children’s Outcomes: Real Effects or Self-Selection?” Real Estate Economics 4 (3): 566–602.

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226 Point of Contention: Homeownership and Child Well-Being The Relationship of Homeownership, House Prices, and Child Well-Being Donald Haurin The Ohio State University In the fourth quarter of 2012, the homeownership rate in the United States was 65.4 percent for all households. For the groups most likely to have children, the ownership rate was substantially lower, ranging from 21.9 percent for households under age 25, to 34.9 percent for those ages 25 to 29, to 48.6 percent for those ages 30 to 34, and to 60.4 percent for those ages 35 to 44.

Improving child outcomes is important for parents and society. These outcomes include high cognitive abilities, positive behaviors, graduating from high school and attaining additional education, earning high wages, and achieving other positive economic and social outcomes as young adults.

The question of whether homeownership affects child well-being is thus important for understanding child outcomes and determining which public policies could be effective in improving outcomes.

Many studies have examined the determinants of homeownership. Economic factors known to positively influence the probability of a household being a homeowner include greater household wealth and permanent income, lower costs of owning (interest rates, property taxes, and transaction costs), greater expected returns on housing as an investment, and higher rental costs (the alternative to owning). Annualized transaction costs are lower the longer a household plans to remain in the dwelling; thus, households that expect to be geographically stable tend to be homeowners. Demographic factors such as marriage increase the likelihood of owning. In addition, it is likely that unobserved household characteristics, perhaps a desire to attain the “American Dream,” increase the probability of a household becoming a homeowner.

The major difficulty in determining whether homeownership causes improved child well-being is that many items in the list of factors that increase the likelihood of homeownership also are likely to improve child outcomes. For example, greater wealth permits greater investment in children and also access to better school quality. Greater household stability is more likely for homeowners than for renters and also has been shown to improve schooling outcomes. Owned dwellings are larger than rented dwellings, and the increased amount of space per child has been shown to positively affect child outcomes. Some of the difficult-to-observe household characteristics that increase the likelihood of homeownership are also likely to positively affect child outcomes. These confounding factors must be measured and controlled for in a statistical analysis of child outcomes before any conclusions can be drawn about the causal effect of homeownership.

Cityscape 227 Cityscape: A Journal of Policy Development and Research • Volume 15, Number 2 • 2013 U.S. Department of Housing and Urban Development • Office of Policy Development and Research Haurin Another difficulty in establishing a causal linkage between homeownership and child outcomes is theoretically identifying a causal mechanism and then showing that the mechanism is present in U.S. society. Why might homeownership cause better child outcomes? One plausible reason is that homeowners maintain their properties better than landlords or renters. An important aspect of maintenance for older properties is lead paint abatement. Homeowners have a direct incentive to engage in optimal abatement, whereas the incentives for landlords and renters are less clear.

Furthermore, it is well established that lead in the home environment negatively affects children’s cognition and behaviors. This is only one example of a mechanism that would link homeownership to improved child well-being. The literature identifies few linkages, however, and rarely tests for their effect.

The conclusion of the previous arguments is that it is challenging for empirical work to link homeownership and improved child outcomes. Even so, empirical studies attempt to address the previous problems. Haurin, Parcel, and Haurin (2002) studied child cognition and behavioral outcomes using a multiyear panel dataset that contains extensive information about a child’s parents and their socioeconomic situations, thus controlling for a large number of confounding factors.

They use statistical methods that attempt to control for which households choose to be owners (self-selection). This analysis concludes that the children of homeowners, compared with the children of renters, achieve modestly higher math and reading scores (measured by a standardized test). An important unanswered question in this study, however, is whether it is homeownership that affects child outcomes or whether it is the characteristics of owned dwellings compared with rented dwellings; examples of these characteristics include building and lot size. This particular lack of clarity occurs in other studies of the effect of homeownership on children. Until this topic is researched further, the question of whether homeownership causes improved child well-being should be considered open.

New research on the linkage between housing and child outcomes is following another, more general route. Decades of research have established that lower house prices increase households’ demand for housing (the price elasticity estimates tend to be about -0.6). If more and better housing improves child outcomes, then public policies that reduce the price of housing should have a positive effect on children. The linkage between home sales prices and child outcomes is much more complex, however, than a simple linkage between sales price and quantity. Given that housing demand is price inelastic, higher house prices (rented or owner-occupied) imply that households will spend more on housing, leaving less to spend on other goods. This reduction likely includes spending less on children’s educational materials and experiences that would positively affect children. Another response to high house prices and increased expenditures on housing may include additional hours worked by the parents, reducing their time inputs to childcare. Recent studies argued that high house prices affect marital stability through an asymmetric effect whereby both rising and falling prices reduce divorce. Also, high house prices may affect fertility. Both changes would likely affect a child’s well-being. Because of the capitalization effects, high house prices may reflect high-quality neighborhood amenities such as schools and a child’s peers. Overall, the theoretical direction of effect of high house prices on child outcomes is ambiguous, but the presumption is that negative effects will dominate. Empirical work on the linkage of house prices and child outcomes is very limited. Recently, Blau, and Haurin (2013) found that high owner-occupied 228 Point of Contention: Homeownership and Child Well-Being The Relationship of Homeownership, House Prices, and Child Well-Being house prices reduce children’s math cognition but not their reading cognition, behavioral problems, or health. They find no effects of rental prices on any of these outcomes. The effect is greatest for the female children of Hispanics, especially when ages 6 to 10, and for mothers whose cognitive achievement is in the lower half of the distribution. Blau and Haurin also found that living in areas where owner-occupied house prices are high during childhood reduces young adult wage rates, perhaps because of lower cognitive skills in math. The effect on math abilities could occur through multiple mechanisms. For example, higher owner-occupied house prices could result in households choosing to rent, thus forgoing the benefits of homeownership mentioned earlier. Or, higher owner-occupied house prices could result in smaller owner-occupied dwellings, increasing crowding and reducing children’s ability to study. Or, as mentioned previously, higher owneroccupied house prices could affect other parental behaviors, including reducing expenditures on educational materials or spending fewer parental hours with their children. Further research is needed to clarify the mechanisms through which house prices affect household behaviors and child outcomes. This research is required before public policies can be optimally targeted.

Author Donald Haurin is Professor of Economics, Emeritus, at The Ohio State University.

References Blau, David M., and Donald R. Haurin. 2013. The Effect of the Price of Housing on Child and Young Adult Outcomes. Working paper. Columbus, OH: The Ohio State University.

Haurin, Donald R., Toby Parcel, and R. Jean Haurin. 2002. “Does Home Ownership Affect Child Outcomes?” Real Estate Economics 30: 635–666.

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230 Point of Contention: Homeownership and Child Well-Being The Evidence Does Not Show That Homeownership Benefits Children David R. Barker University of Iowa Billionaires live in big houses, but aspiring tycoons would be mistaken if they concluded from this fact that upgrading their abodes would increase their chances of obtaining great wealth. Similarly, the fact that children of homeowners are better off than children of renters does not necessarily imply that every parent should own a house.

Believing that simple solutions will ease the problems of poverty and inequality is tempting, particularly when the solutions are promoted by armies of brokers, builders, and bankers who stand to profit from them. Factors influencing the well-being of children are particularly complex, however, and it is unlikely that merely switching families from renting to owning their homes would make a significant difference.

Homeownership may have positive effects on children, but negative effects may also exist, making the net effect difficult to determine. For example, home equity often represents a large fraction of a family’s wealth, reducing the level of diversification in their investment portfolio, making them more vulnerable to economic fluctuations. Owning a home also makes it more difficult to move quickly in response to changes in employment opportunities. Lower family income can have a negative effect on children, possibly offsetting any positive effect of homeownership.

Perhaps the earliest research on the relationship between the well-being of children and homeownership was that of Harvard historian Stephan Thernstrom. Thernstrom (1964) studied records of children in 19th-century Newburyport, Massachusetts. Thernstrom found that homeownership was associated with less upward occupational mobility for children, probably because spending more money on housing made it harder to pay for education.

In contrast to Thernstrom’s findings, modern data clearly show a positive correlation between child welfare and homeownership, but the question of causation is more difficult. The problem is not reverse causality, because it seems unlikely that having wonderful children causes parents to purchase houses, but that additional factors may affect the well-being of children and homeownership.

Researchers must carefully control for the wide variety of factors that might simultaneously influence the well-being of children and homeownership.

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