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Help with mortgages, not rent, needed to fix housing crunch in Democrats' $3.5 trillion plan

Monthly mortgage payments are lower than monthly rent on average, regardless of household income. We need to help poorer families buy homes and build wealth.

Senate Democrats unveiled a $3.5 trillion spending plan Tuesday to dramatically shore up the country’s safety net. Among the priorities is hundreds of billions for affordable housing — a welcome development in a nation where an affordability crisis is blooming.

Details are still scarce, but we know that President Joe Biden has called for addressing the shortage of affordable housing options by building and rehabilitating more homes. Boosting the supply of affordable housing alone, however, won’t be enough to solve the crisis. The key to addressing affordable housing, and closing the racial wealth gap along with it, is homeownership.

Often overlooked in efforts to reduce housing costs are ways to help people own rather than rent — even when homeownership is the more efficient and effective option, and provides the kind of stability families need, all while helping build wealth.

Despite a persistent belief that homeownership is reserved only for people who reach some level of financial security, the opposite is the case for a majority of Americans. In two-thirds of U.S. counties, it’s cheaper to buy a home than it is to rent. Financing the estimated median U.S. home with a standard fixed-rate mortgage, the average monthly mortgage payment is less than average monthly rent.

That’s true regardless of household income levels. Renters who make less than $50,000 spend about a third of their income on housing, while homeowners spend only a quarter. And renters who make less than $20,000 a year spend nearly half of their income on housing, while homeowners spend 38 percent. One reason is that mortgage payments are generally stable, while rents tend to rise.

And even though Black and Hispanic homeowners spend a higher percentage of their income on housing than white homeowners, total housing expenses — which included mortgage payments, insurance costs and taxes — are still lower than that of all renters. Black and Hispanic home-owning households spend nearly one fifth of their income on housing expenses, while the typical white renting household spends nearly a quarter of its income on housing.

Over time, the cost of owning a home as a share of income almost always declines. That makes sense, since our income and expenses generally increase over time in relation to the overall rate of inflation. For homeowners, however, the biggest part of their housing expense — the mortgage payment — is fixed, so homeowners end up being better off than renters.

Homeownership is also a key wealth driver because those mortgage payments are building the homeowner’s equity. While renting is purely an expense, owning a home is a combination of an expense and an investment. After that final mortgage payment is made, housing expenses drop steeply, leaving only taxes, insurance and maintenance costs. That sharp drop often coincides with retirement, when income also usually declines. Renters don’t receive that financial benefit.

In crafting public policy, it’s also crucial to keep in mind that a focus on homeownership is a cheaper solution in the long run than rent vouchers, often our go-to affordable housing policy. While rent vouchers are an important social safety net, paying a portion of someone’s rent for years on end gets expensive while doing nothing to assist a family in building wealth — and eventually reducing their need for assistance.

In fact, according to my calculations, a one-time investment equal to the amount we currently spend annually on rent vouchers could provide a homeownership voucher to enough new home buyers to increase the Black homeownership rate from 42 percent to 60 percent, substantially narrowing the Black-white homeownership gap.

By helping households raise a down payment sufficient to obtain affordable, safe mortgages and developing new ways to assist them in buying a home that don’t exclude communities of color, such as helping families improve their credit in order to qualify for a good mortgage or finding real estate agents who will aid them in finding a home they can afford, we can both increase access to long-term affordable housing and have a major impact on closing the racial wealth gap.