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Cleveland, Ohio – Homeownership can be less costly than renting for low-income households and may provide them with a greater sense of well-being, even during times of economic upheaval, a UNC Center for Community Capital researcher told policymakers and others convened for the Federal Reserve Bank of Cleveland Policy Summit, “A Conference on Housing, Human Capital and Inequality,” June 9-10.

The Cleveland Fed’s 9th annual Policy Summit draws an audience of several hundred researchers, practitioners, policymakers, funders, elected and legislative officials and bankers from across the Great Lakes region. The 2011 conference focused on housing, inequality, neighborhoods and labor market issues with special attention to the impact of the foreclosure crisis.

Center senior research economist Sarah Riley presented findings from two recent center studies:  “Perception vs. Reality: The Relationship between Low-Income Homeownership, Perceived Financial Stress, and Financial Hardship,” conducted with research associate Kim Manturuk and executive director Janneke Ratcliffe; and “The User Cost of Low-Income Homeownership,” conducted with graduate research assistant HongYu Ru.

The perception research examined how homeowners and renters were impacted by the financial crisis in 2009. Researchers built on the hypothesis that homeownership provides people a sense of stability and control, which decreases the extent to which they feel psychologically stressed as a result of financial hardship. They compared low-income homeowners with renters to determine whether owning a home affected either the degree to which lower-income households actually experienced financial hardship or the extent to which they perceived they were financially stressed. The analysis revealed that, although both renters and owners experienced similar levels of financial hardship, the homeowners were less psychologically stressed overall and reported feeling more satisfied with their financial situation.

The second study, on the user cost of low-income homeownership, examined whether owning a home is less costly than renting for individual low-income households who had purchased their homes with high-quality mortgage products. The user cost of owned housing is a comprehensive measure of all the financial costs and benefits associated with owning a house, such as mortgage interest and insurance, property taxes, home owners association fees, home maintenance, the opportunity cost of holding equity in the house and the amount of house price appreciation.

The center compared the user costs of low-income homeowners   to the estimated costs of renting equivalent properties.  Researchers found that the median low-income homeowner was financially better off owning than renting during the period of 2003-2010. Moreover, an annualized house price appreciation rate of only 2 percent was all that was necessary to ensure that the median low-income homeowner found it no more costly to own than to rent.

View Riley’s presentation.

Mortgage finance is a key area of study for the UNC Center for Community Capital, the leading center for research and policy analysis on the transformative power of capital on households and communities in the United States. Part of the College of Arts and Sciences at the University of North Carolina at Chapel Hill, the center offers data and analysis that helps policymakers, advocates and the private sector find sustainable ways to expand economic opportunity to more people more effectively. For more information, visit or call (919) 843-2140.

Topics(s): Affordable Homeownership, Housing Policy, Impacts of Homeownership, Mortgage Finance
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