Abstract

The User Cost of Low-Income Homeownership: 2003-2010 [PDF]
Authors: Sarah F. Riley, and HongYu Ru
September 2011

 

Empirical research examining whether owning a home is less costly than renting for low-income households is largely lacking. We use detailed information provided by a set of low-income homeowners and renters who participated in the Community Advantage Panel Survey to determine whether low-income households in the United States were better off owning or renting from the perspective of ex post user costs between 2003-2010.  We calculate the homeowners' user costs directly from the survey data, and we derive hedonic measures of equivalent rent for these homeowners via pooled regressions of house prices and rents on housing characteristics, from which we obtain capitalization rates. For the median homeowner in our sample, we find that owning was less costly than renting a comparable property between 2003-2010. Moreover, we estimate that annual house price appreciation of about 2% percent was required for the median low-income homeowner to find owning no more costly than renting during this period.

 

Keywords: User Cost, Equivalent Rent, Low-Income Homeownership, Community Reinvestment Act
JEL: R21, R28, R31, R38, D14