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Evaluating Homeownership as the Solution to Wealth Inequality

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  • Daniel R. Carroll
  • Ross Cohen-Kristiansen

Abstract

Homeownership presents an opportunity to accumulate wealth, making it an appealing vehicle for reducing wealth inequality. In this Commentary, we explore the investment side of homeownership. The opportunity for leveraged returns can lead to wealth gains among lower-income households; however, we note that homeownership for low-income homeowners carries three types of risk that are higher for them than for high-income homeowners: location, timing, and liquidity. Thus, policies that incentivize purchasing homes to reduce wealth inequality or close racial wealth gaps should be adopted only after great care has been taken to protect against these risks.

Suggested Citation

  • Daniel R. Carroll & Ross Cohen-Kristiansen, 2021. "Evaluating Homeownership as the Solution to Wealth Inequality," Economic Commentary, Federal Reserve Bank of Cleveland, vol. 2021(22), pages 1-7, December.
    • Handle: RePEc:fip:fedcec:93522
    DOI: 10.26509/frbc-ec-202122
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    References listed on IDEAS

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    1. Dionissi Aliprantis & Daniel R. Carroll & Eric Young, 2019. "The Dynamics of the Racial Wealth Gap," Working Papers 19-18R, Federal Reserve Bank of Cleveland, revised 29 Nov 2022.
    2. Jordan Rappaport, 2010. "The effectiveness of homeownership in building household wealth," Economic Review, Federal Reserve Bank of Kansas City, vol. 95(Q IV), pages 35-65.
    3. Marco Giacoletti & Stijn Van Nieuwerburgh, 2021. "Idiosyncratic Risk in Housing Markets [Credit supply and house prices: Evidence from mortgage market segmentation]," The Review of Financial Studies, Society for Financial Studies, vol. 34(8), pages 3695-3741.
    4. Wainer, Allison & Zabel, Jeffrey, 2020. "Homeownership and wealth accumulation for low-income households," Journal of Housing Economics, Elsevier, vol. 47(C).
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