Putting a Number on the Benefits of Homeownership
Recent research co-authored by N. Edward Coulson of the Penn State Smeal College of Business concludes that homes with owner-occupiers versus renters provide annual estimated benefits to the community in excess of $1,300 per property.
In a paper published in the Journal of Urban Economics, Coulson, professor of business economics and the King Fellow in Real Estate at Smeal—along with co-author Herman Li of the University of Nevada, Las Vegas—set out to quantify the benefits of homeownership with this premise: “If homeownership is valuable to the owner’s neighbors, then those neighbors should be willing to pay more to live near owner-occupiers.”
"[O]wnership not only creates private benefits but also benefits for the neighborhood and broader community.”
By measuring shifts in local housing prices as homeownership rates in the area change, the authors were able to quantitatively estimate the value of a transition from rental status to ownership, concluding that a transition “from rental to ownership in a typical neighborhood would create about $1,327 per year in externality value.”
In the past, the value of homeownership has largely been qualified through the behavioral patterns of owners versus renters and the subsequent positive effects in the community.
Such behavioral patterns include the suggestion that dwelling and maintenance appearance is better kept by homeowners, that children raised in owned homes have higher graduation rates and cognitive abilities, and that homeowners are more civically involved in their communities. However, even these non-financial benefits have been called into question by more recent research.
According to the authors, putting a dollar amount on the benefits of homeownership, in part, helps to justify the government subsidization that helps people in the United States buy homes. The desirability of such subsidies—including federal benefits such as the deductibility of mortgage interest payments from income as well as state- and local-level benefits—has been called into question in the wake of the recent economic downturn.
Coulson and Li assert that there should be a more compelling, quantifiable justification for the government subsidies that support homeownership. That more compelling argument, they write, is that “ownership creates external benefits; that ownership not only creates private benefits but also benefits for the neighborhood and broader community.”
“Measuring the external benefits of homeownership” appeared in the September 2013 issue of the Journal of Urban Economics and was authored by N. Edward Coulson and Herman Li. Coulson is a professor of business economics and the King Fellow in Real Estate in the Penn State Smeal College of Business. Li is an assistant professor in the Lee Business School at the University of Nevada, Las Vegas.
Real Estate at Penn State
The Penn State Smeal College of Business offers real estate education as an option to undergraduate students and as an emphasis in the college’s doctoral program. Courses in real estate are also available as part of the Penn State Smeal MBA Program. Smeal’s Institute for Real Estate Studies, established in 1985, fosters discussion and research between academics and business professionals in the area of real estate, and its Real Estate Advisory Board connects students and faculty with industry, assisting with student job and internship placement and advising on curriculum.