Returns to Homeownership and Inequality: Evidence from the First-Time Homebuyer Tax Credit

Returns to Homeownership and Inequality: Evidence from the First-Time Homebuyer Tax Credit

Authors: Marina Gindelsky, Jeremy Moulton, Kelly Wentland, Scott Wentland

Abstract: Homeownership is often promoted as a key to building wealth and a pathway to reducing wealth inequality across racial groups in the U.S. However, the prior two decades saw a housing bubble form and burst with significant impacts on homeownership rates and returns, which varied by race. In this paper, we examine 1) how returns to homeownership differ by race using address-level microdata over this period, and 2) whether a policy intended to expand homeownership among more liquidity constrained buyers, the 2008-10 First-time Homebuyer Tax Credit (FHTC), altered this broader dynamic. To answer these questions, we employ a unique national dataset linking internal American Community Survey (ACS) households to transactions from Zillow’s ZTRAX database for 2000-2016. We exploit the FHTC setting using a difference-in-differences framework, finding that income-eligible homebuyers had substantially higher gross returns to homeownership compared to ineligible households. In contrast to our initial findings, where minority householders realized lower returns to housing over the broader boom-bust-recovery period, the FHTC results also show eligible Black and Hispanic householders who purchased a home during the relevant policy period significantly outperformed White householders.

Seminar Notes

Venue

2024 UC Davis Alumni Conference

Objective

Are there differences in returns to homeownership across racial groups? Does additional upfront capital improve housing returns?

Importance

Taken as a given in US that homeownership is a good thing. Federal government assistance for first-time homeowners

Background

Black-white wealth gap has persisted, homeownership gap also persistent. Large % of American’s wealth in housing

Up front capital may make a differences because of large up front or lumpy expenditures involved in homeownership.

May affect resale value, particularly lumpy repair costs

Data & Key Variables

Zillow data

Returns to housing =(current value-Initial Value)/Initial value

ACS demographics, matched to Zillow by MAFID - age, edu, marital status, household size, household income

140,000 matched observations

Methodology

Calculate housing rate of return using initial purchase price and sales price. Add controls for property characteristics, demographics, tract fixed effects

First time owner tax credit, $8,000 credit, 2009-2010 - shock to upfront capital.

Diff-in-diff between eligible vs not eligible. Triple diff with race

Results

For white households the total rate of return is 12%, but annualized only 0.9% and inflation adjusted -3%.

For Black households total rate of return is -6% and annualized and inflation adjusted is -19%

Even with controls 2% lower return for Black households relative to white

First time homeowner tax credit helped Black households more than white. Buy cheaper houses, sell for about going rate.

Key Table/Figure