Mortgage help, not rent, needed to solve housing problem in Democrats’ $ 3.5 trillion plan
Senate Democrats on Tuesday unveiled a $ 3.5 trillion spending plan to significantly strengthen the country’s safety net. Priorities include hundreds of billions of dollars for affordable housing – a welcome development in a country where an affordability crisis is brewing.
Details are still scarce, but we do know that President Joe Biden has called for addressing the dearth of affordable housing options by building and rehabilitating more housing. However, boosting the supply of affordable housing alone will not be enough to resolve the crisis. The key to approaching affordable housing and closing the racial wealth gap with it is homeownership.
Ways to help people own rather than rent are often overlooked in efforts to reduce housing costs, even when homeownership is the most efficient and effective option and offers the kind of stability families need, while helping to build a heritage.
Despite a persistent belief that home ownership is only for people who achieve a certain level of financial security, the opposite is the case for a majority of Americans. In two-thirds of US counties, it is cheaper to buy a house than to rent. Estimated median US home financing with a standard fixed rate mortgage, the average monthly mortgage payment is lower than the average monthly rent.
This is true regardless of the household income level. Renters earning less than $ 50,000 spend about a third of their income on housing, while landlords spend only a quarter. And renters who earn less than $ 20,000 a year spend almost half of their income on housing, while homeowners spend 38%. One reason is that mortgage payments are generally stable, while rents tend to rise.
And even though black and Hispanic homeowners spend a higher percentage of their income on housing than white homeowners, total housing expenses – which include mortgage payments, insurance costs, and taxes – are still lower than those in housing. all tenants. Black and Hispanic owner households spend almost a fifth of their income on shelter expenses, while the typical white renter household spends almost a quarter of their income on shelter.
Over time, the cost of owning a home as a percentage of income almost always decreases. This makes sense, since our income and expenses generally increase over time relative to the overall rate of inflation. For homeowners, however, most of their housing expenses – the mortgage payment – are fixed, so owners end up doing better than renters.
Homeownership is also a key factor in wealth, as these mortgage payments constitute the owner’s equity. While renting is purely an expense, owning a home is a combination of expense and investment. Once the last mortgage payment is made, housing expenses drop sharply, leaving only taxes, insurance and maintenance costs. This sharp drop often coincides with retirement, when income also typically declines. Tenants do not receive this financial benefit.
When shaping public policy, it is also crucial to keep in mind that the emphasis on home ownership is a cheaper long-term solution than rent vouchers, often our housing policy. affordable. While rent vouchers are an important social safety net, paying part of someone’s rent for years is expensive without doing anything to help a family build wealth – and ultimately reduce their need for help.
In fact, by my calculations, a one-time investment equal to the amount we currently spend each year on rental bonds could provide a homebuyer’s bond to enough buyers to push the homeownership rate up. Blacks from 42% to 60%, drastically reducing the homeownership rate. Black-white home ownership gap.
By helping households raise enough down payment for affordable and secure mortgages and developing new ways to help them buy a home that doesn’t exclude communities of color, such as helping families improve their credit in order to qualify for a good mortgage or find real estate agents who will help them find housing they can afford, we can both increase access to affordable long-term housing and have a major impact on reducing the racial wealth gap.