As country gets richer, homeowners see the most gain

Late last year, the United States quietly hit a financial milestone. According to a report from the Federal Reserve, household net worth in this country rose to a new record, hitting $98.74 trillion.

That astronomical figure—the sum of all assets, such as stocks and real estate, minus the cost of debts and liabilities, like outstanding credit card payments—jumped $2 trillion in the last quarter of 2017 alone, surging past pre-Great Recession levels.

As economist Michael Feroli told the Wall Street Journal, the ratio of wealth to income is “at pretty dizzying levels right now,” especially considering that the U.S. savings rate has actually decreased in recent years, dropping from 7.19 percent in 2015 to 3.74 percent last year.

At the risk of echoing the “greed is good” ethos, increased household wealth can be a positive thing overall. More buying power can mean more investment and economic activity. It’s certainly better than decreasing wealth, though some analysts have said the concurrent rise in assets and decrease in savings looks uncomfortably similar to the run-up to other financial busts.

But while the quarterly report, known as the “flow of funds,” shows growth, it doesn’t break down demographics or examine how assets are distributed. That breakdown would likely show much less encouraging news: evidence of an economy becoming more and more uneven, due to the unequal distribution of opportunity across economic, racial, and generational lines.

According to that same Wall Street Journal article, this recent explosion in wealth comes in large part due to stocks and property value. The bullish stock market saw huge gains in 2017, with the S&P 500 rising 19 percent, and the Dow Jones Industrial Average jumping 25 percent. Household wealth increased $1.346 trillion in the fourth quarter alone. During that same period, household value rose $511.2 billion, or 1.6 percent.

These figures suggest that stocks and real estate continue to be the engines of American wealth generation. And it’s an engine that many Americans can’t access. Only 54 percent of U.S. adults have investments in the stock market, with just 21 percent of households making $30,000 or less owning stocks. Homeownership figures aren’t much better. While the rate has increased slightly, the anemic 62.9 percent national homeownership rate in 2016 was the lowest since 1965.

Homeownership may be one of the most significant, and surefire, means of increasing net worth. The average homeowner has a net worth of $195,400, 36 times that of the average renter’s net worth of $5,400. And it’s becoming harder for a larger group of the population to reach this goal.

As journalist and Evicted author Matthew Desmond wrote in the New York Times, national housing policy, via tools like the mortgage-interest tax deduction, is so tilted toward homeowners, “it is difficult to think of another social policy that more successfully multiplies America’s inequality in such a sweeping fashion.”

Millennials, as well as middle-class families, have been facing a more intimidating housing market for years. Making the jump from renting to ownership has become more difficult due to the quickly rising real estate prices.

Consider the cost of a down payment: In the 10 fastest-growing metro markets, home values now average $575,000, according to the Harvard Joint Center on Housing Studies. In 16 percent of metro areas, home prices jumped 40 percent or more between 2000 and 2016, and in 12 metro areas, prices doubled.

These stats suggest that those who were lucky enough to buy into these markets early, when it was affordable, have seen skyrocketing personal wealth, while others struggle to buy in. In addition, the study found that in 280 less-desirable metros, home prices dropped. This engine of wealth is far from evenly distributed.

Even if a down payment fell from the sky, maintaining a mortgage would, for many, be financially impossible. Harvard research also discovered that, on average, just 45 percent of renters in metro areas can afford monthly mortgage payments on the median-priced home in their market. That figure plummets to 10 percent in high-cost coastal cities in California, Florida, and the Northeast.

While rising prices impact everyone, that barrier isn’t as pernicious and difficult to overcome as the ones created by decades of discrimination against homeowners of color. When the federal government began subsidizing and supporting homeownership in earnest after World War II—using the GI Bill, mortgage insurance, and the mortgage-interest tax deduction—African Americans were largely excluded. As Desmond writes, people of color were denied GI Bill benefits; were subject to redlining by the Federal Housing Authority, which restricted homeownership in black neighborhoods; and had their loan applications declined.

This history of discrimination has created a substantial racial gap in homeownership that is actually getting worse today. Black homeownership fell to 42.2 in 2017, dropping below 1994 levels. With white homeownership rates increasing to 71.9 percent, the gap is larger than it’s been since WWII.

According to a recent study by the Urban Institute, not one of the 100 cities with the largest black populations has anywhere close to an equal homeownership rate between black and white people. In Minneapolis, Minnesota, the gap is a staggering 50 percent. These disparities get reinforced in the mortgage market: A Wall Street Journal analysis found that just 5 percent of mortgages were offered to African Americans in 2014, down 3 percentage points from 2014.

The persistent gaps in homeownership and stock market investment suggest that a rising tide is not lifting all boats. There are proposals to mitigate inequality and make it easier to help others achieve homeownership. A recent analysis of the mortgage-interest tax deduction found that the program actually didn’t increase rates of homeownership; instead, it just increased the wealth of existing homeowners.

Since it’s projected by the congressional Joint Committee on Taxation to cost the government $72.4 billion and only be available to the 30 percent of taxpayers who itemize their deductions, the authors suggest that the government pivot and instead offer a tax break for first-time home buyers.

Desmond suggested another fix that could channel government funding toward more broad-based housing assistance. Capping the MID at $500,000 (meaning owners of homes worth more couldn’t claim a higher benefit off the extra value) would save the government $87 billion over 10 years, money that could be used to help 1.2 million additional families benefit from housing vouchers. That shift would have “virtually no effect on homeownership rates,” according to researchers.

Modern America has always espoused homeownership, complete with a white picket fence, as a means to achieve financial and social stability. But we’re losing that ladder of opportunity if we don’t help more hardworking renters make the jump to ownership. A little more than 70 percent of the country’s lowest-income households face severe housing burdens. By channeling more of the benefits of housing policy away from those already invested in property to those trying to get a permanent home, the country could help more people realize their own American dreams.