A common rationale for federal policies to expand homeownership is the desire to reduce observed racial differences in homeownership. Receiving the most attention has been the gap in homeownership rates between white households and African-American. The current homeownership rate for whites is 76.5 percent (2007), while that for African-Americans is 54 percent, leaving a gap of 22.5 percent.
Limitations on available data have made observations prior to 1940 difficult (1940 was the first “Census of Housing”). A new working paper adds to our understanding by constructing a time series back to 1870, using previous Census data. The findings are quite surprising.
In 1870 the gap between white and African-American homeownership rates stood at an astonishing 48.8 percent. As mentioned, this gap in 2007 was 22.5 percent, representing a 26.3 percentage point decline. However, of that 26.3 narrowing, 25.3 occurred before 1910. That is correct, almost all of the decline in the racial homeownership gap occurred before we had any national policies targeting said gap. Given all the massive resources that have been devoted to pushing homeownership, it is somewhat surprising that these policies have made almost no difference in the racial homeownership gap.
Obviously homeownership rates in general, and by race, have steadily increased (until the recent bursting of the housing bubble), but these rates largely increased the same across racial groups. We should also note that the vast majority, if not all, of the racial homeownership gap is explained by factors such as age, income, family status, wealth and local housing costs (see Coulson and Dalton forthcoming). Given what little impact these policies have had, and their significant costs, it should be clear that we, as a society, would be better off abandoning efforts to socially engineer a specific homeownership rate, either for the population in general or by racial group.
See this Cato essay for more on the problems with the federal government subsidizing homeownership.