Homeownership and the American Dream – An Analysis of Intergenerational Mobility Effects

The benefits of homeownership feature prominently in the academic and policy discussions alike. Increasing homeownership has been a major policy goal for decades, especially in low-income areas. We show that the positive relationship between homeownership and intergenerational mobility is highly place-dependent. First, we link commuting zone-level homeownership rates to intergenerational mobility, and find a strong positive relationship. The relationship persists after instrumenting for ownership using housing supply and price shocks. Second, we show that the positive relation between of homeownership and upward mobility is significantly diminished or disappears in areas with high sprawl or segregation, whether we use income segregation, racial segregation, or a new measure of homeowner segregation. These results, as well as additional findings on the formation of social capital and on school quality, suggest that homeownership may not benefit, or may even disadvantage children in segregated, poor areas, possibly through reduced residential mobility. ∗Ph.D. candidate in Finance and Real Estate, Haas School of Business, Berkeley, CA, US. e-mail: nirupama [email protected]. †Finance, Haas School of Business, Berkeley, CA, US. “No person, even the President, can . . . guarantee you . . . [that] you will always have the job you have today . . .But we can guarantee to people that we’re going to empower them to help themselves. We’ll make home ownership more accessible.” – President Bill Clinton (1995) “We can put light where there’s darkness, and hope where there’s despondency in this country. And part of it is working together as a nation to encourage folks to own their own home.” — President George W. Bush (2002)